Oral Answers to Questions

DEFENCE

The Secretary of State was asked—

Second World War

Meg Hillier: What events are planned to mark the 60th anniversary of the second world war; and if he will make a statement.

John Reid: It is extremely important that all of us in this country recall the sacrifices of our past and pass on the culture of remembrance from generation to generation. That is why the Government are organising a series of events this week to commemorate the 60th anniversary of the end of the second world war. They will be centred on national commemoration day, on 10 July. It will bring to an end the first ever veterans awareness week, which will concentrate this year on second world war veterans.

Meg Hillier: Does my right hon. Friend agree that it is extremely important to recognise not only the veterans who are still alive but the memory of those who gave their lives in conflict for our future? Will he join me in applauding the work of the late Sir Donald Thompson, a former Member of this House, in establishing the War Memorials Trust, of which I am a trustee? Will my right hon. Friend also promise that he will work with colleagues at the Department for Culture, Media and Sport to ensure that all war memorials—not just listed ones—are preserved, as the conflicts that we are discussing move from living memory to history?

John Reid: I should like to associate myself with my hon. Friend's tribute to Sir Donald, a former Member of this House, whose tireless efforts on behalf of the War   Memorials Trust—a charity dedicated to the conservation and preservation of 65,000 memorials throughout the country—has ensured that those who gave their lives for our freedom are not forgotten. In a real sense, this week's veterans awareness week is intended to be a living memorial not only to those who gave their lives, but to those—military and civilian—who suffered great hardship and made great sacrifices for this country. It is a fitting tribute to them.

Daniel Kawczynski: I hope that when we do commemorate the many veterans who sacrificed so much, the Secretary of State will remember the many Poles who came to this country. According to some estimates, one in five of the pilots who fought in the battle of Britain were Polish. My own grandfather was among the Poles who came over during the war, and I hope that we can remember them as well.

John Reid: Absolutely. The hon. Gentleman may be pleased to know that I was the first Defence Minister ever to attend the Polish memorial ceremony at Northolt, on Remembrance day 1997. So I do remember the Poles, along with the Czechs and the many other nationalities who came here. But as the hon. Gentleman says, none were more prominent than the Poles, particularly those who served in the Royal Air Force.

Sarah McCarthy-Fry: We in Portsmouth have just commemorated the 200th anniversary of the battle of Trafalgar. One of the most moving aspects of last Wednesday's drumhead service was the work that veterans had done with local schoolchildren. Does my right hon. Friend agree that it is very important that we keep alive the memory of those who gave their lives in the service of their country, and that our schoolchildren learn what such conflicts were like?

John Reid: Absolutely. I had the great pleasure of attending, with Her Majesty the Queen, the review of the fleet, which took place off Portsmouth, and the Under-Secretary, my hon. Friend the Member for Islwyn (Mr. Touhig), attended the drumhead ceremony. It is of course vitally important that we recall the lessons to be learned, as well as the memory of those who served in combat for us. First, we should recall the terrible, tragic and huge cost of war. Secondly, we should recall the price of appeasement, which resulted in many more lives being lost than would have otherwise been lost. Thirdly, we should recognise that these memories have to be retained for generation upon generation, because it is on them that we build partnership and peace with former enemies. Thankfully, such efforts have preserved peace in Europe for 60 years.

Joint Strike Fighter

Crispin Blunt: If he will make a statement on the ownership of the intellectual property in the joint strike fighter.

Adam Ingram: Intellectual property rights in the joint strike fighter system are owned by the contractor generating them, whether UK or US companies. Ownership of subcontractor-generated information is a commercial matter between the contractor and subcontractor. The Ministry of Defence can use the IPR generated under the JSF contracts and subcontracts for purposes associated with JSF, whether nationally or collaboratively with other partner nations.

Crispin Blunt: Will the Minister confirm that owing to lack of access to the intellectual property invested in the joint strike fighter—the UK has now invested some £2 billion in this programme—and owing to the lack of a guarantee of future access to such property and to other elements of the JSF programme, if we ordered this aircraft today, we would not have sovereign control over it? In other words, we would not be able to upgrade and update it in the light of British requirements, once it was in service with us. It is unacceptable for the UK to have such a substantial part of her future defence requirements operating without sovereign control and the fact that this matter has not already been sorted out is a pretty poor return for British assistance to the US. Will the Minister make it clear that it is unacceptable for purchases to go ahead on this basis and will he inform the US Administration that the House believes it to be indifferent at best that her No. 1 partner in this programme and No. 1 partner in operations around the world is being treated in such a fashion without this issue being resolved?

Adam Ingram: I well understand the heat generated by the way in which the hon. Gentleman has raised the matter. We constantly make representations to the US Administration through our defence and other contacts. Discussions are under way to ensure that the information transfer, which is crucial to our maintenance of the fleet, is completed to our satisfaction. We are at an early stage as yet, but the determination that the hon. Gentleman requests certainly exists within the Ministry of Defence and elsewhere in the Government.

Lindsay Hoyle: I am sure that my right hon. Friend would agree that not to have the intellectual property rights and the know-how and ability to service the aircraft as well as build them to supply other nations amounts to a serious setback—not only to the loyal workers at Warton, but to the rest of Europe. The failure to reach agreement on the intellectual rights will put those workers' jobs, and the Royal Air Force as a whole, at risk. Furthermore, we will not have the operational capability to work off the new aircraft carriers. If we fail to get agreement from the Americans, will my right hon. Friend look further into the intellectual property rights and design that was put forward for Typhoon to operate off the carriers and view that as a fall-back position?

Adam Ingram: We are not yet at the stage of having to consider fall-back options or failure, but I take my hon. Friend's point that this is a very serious issue. I reiterate my earlier answer that we are determined to succeed—for all the reasons that my hon. Friend set out. Negotiations are at an early stage and we have very good relations with the US Administration. There are blockages elsewhere in the political processes of the United States and we all have to work earnestly to ensure that those blockages are removed. This will be an important part of our and, indeed, NATO's defence capability.

Michael Jack: Subject to the point raised by my hon. Friend the Member for Reigate (Mr. Blunt) being resolved, does the Minister agree that his own Department's RAND Europe study made a compelling case for Britain to have a final assembly and check-out unit for the joint strike fighter, together with a maintenance and repair unit located here? Will he confirm that, in any further investigations that his Department is making, BAE Systems Warton would be one of the key locations examined in a feasibility study?

Adam Ingram: One thing that can be said with a finger of certainty is that, whenever this matter is raised, the right hon. Gentleman pops up to speak about it. He is right that we commissioned the RAND study, which has pointed out what needs to be done to move the agenda forward in respect of establishing maintenance, repair and upgrade facilities in the UK. The review on how best to develop that is under way and we hope to conclude by September 2005. It would be wrong to be too predictive about what will come out of it. No doubt when the subject comes up again, the right hon. Gentleman will be there pushing the case for BAE Systems.

James Arbuthnot: Would the Minister describe the technology transfer relating to the joint strike fighter as disappointing?

Adam Ingram: There are Government discussions about it, and I have already answered the question twice earlier. We are at an early stage in the discussions and I have expressed my views about some of the blockages, particularly the protectionist tendencies of some politicians in the US, but it sometimes applies to the UK as well. We all have to work earnestly to ensure that those who are putting pressure on the Administration understand the importance of ensuring that this platform is delivered on time so that we can maintain the facility and use it for our own needs, which will also help to support NATO objectives. These are big issues and it is not right to put on the record the type of comment that the right hon. Gentleman elicits.

Nuclear Deterrent

Michael Gove: When he intends to initiate discussions on the future of the British nuclear deterrent.

Chris Mullin: When he expects a decision to be made on a new generation of nuclear weapons; and if he will make a statement.

John Reid: Decisions on any replacement of the United Kingdom's nuclear deterrent are likely to be necessary in the lifetime of the current Parliament, which will of course last some years. I have no doubt the issue will be raised whenever we discuss defence in this House.

Michael Gove: Can the Secretary of State assure me that he will no longer appease the hard-left sentiments of the unilateralist disarmers who are sadly so numerous on Labour's Back Benches? Will he end prevarication on this question and give us a firm commitment that the nuclear deterrent will be modernised urgently in the interests of the defence of this country?

John Reid: I can certainly say to the hon. Gentleman, who is relatively new to the House, that I have never appeased nor will I appease those who call, in today's circumstances, for unilateral nuclear disarmament, such as the former Conservative Secretary of State for Defence, Mr. Michael Portillo, who did so several weeks ago. Nor will the hon. Gentleman find me, unlike colleagues of his on the Front Bench, co-authoring articles in The Guardian with the Campaign for Nuclear Disarmament.

Chris Mullin: All I am looking for is a little transparency. With respect to my right hon. Friend and, indeed, my right hon. Friend the Prime Minister, with whom I raised this subject the other day, official pronouncements on the subject so far have been remarkably vague. May we know when the decision has to be taken and, in due course, what the cost is likely to be and, perhaps, what the purpose of a new generation of nuclear weapons will be? Is my right hon. Friend in a position to assist with inquiries? If he is not, who is?

John Reid: As they would say in Glasgow, "Ah'm yer man" when it comes to assisting my hon. Friend. I have been pretty transparent. First, we pledged no longer than two months ago in our manifesto—to which my hon. Friend was as committed as I was, as far as I am aware—that we would retain the minimum nuclear deterrent, so that is our position. Secondly, the minimum nuclear deterrent that we have at the moment will last us between 10 and 20 years. Thirdly, as far as the situation beyond that is concerned, I have said to my hon. Friend that we have not started even considering, far less taking decisions on, the details of that. That is why I cannot give him costs for the various alternatives. That is as straight as I can make it. It also has the benefit of being honest, even though it may not satisfy my hon. Friend.

Adam Price: More than 50 years ago, a Tory Government made a unilateral announcement that the UK would no longer develop offensive biological and chemical weapons. Would not a similar announcement that there would be no successor to Trident make a positive contribution to the global process of eliminating those weapons of mass destruction?

John Reid: Well, we are talking about events 10 to 20 years away. Although the hon. Gentleman may think that making such decisions arbitrarily is a good method—

Pete Wishart: indicated assent.

John Reid: I see the hon. Gentleman nods, but at this very moment his party is discussing whether to join NATO, which would of course mean joining the nuclear club. What is sauce for the goose has to be sauce for the gander. The House should consider the matter carefully, rather than taking any arbitrary decisions. If the hon. Member for Carmarthen, East and Dinefwr (Adam Price) can tell us off the top of his head what the situation will be in 10 to 20 years' time, we would all greatly benefit from that.

Robin Cook: Can my right hon. Friend say whether, in the event that he intends not only to retain the deterrent but to replace it, he would expect the defence budget to be increased? If he does not expect that budget increase, would it not be entirely rational to decide that it might be wiser to husband his budget for the peacekeeping and stability missions that the British forces do so well and which, as I can testify, greatly enhance Britain's standing in the world?

John Reid: If my right hon. Friend will allow me, I would rather study the options and their implications before drawing conclusions from any of those options, whether on the basis of cost or anything else. When we consider the dynamics of change over the last six years, we find, in terms of our nuclear deterrent, that on the one hand we have reduced to a single form of nuclear deterrence—the only nation to do so; we have abolished the WE177 freefall bomb, detargeted our missiles and reduced the number of warheads and the number of boats we have at sea. On the other hand, since then, we have discovered that North Korea, Pakistan, India and, formerly, Libya were in the process of developing programmes, and there may have been aims in Iraq, too. The situation is constantly fluid and it behoves all of us to give the matter serious and prolonged consideration rather than pre-empting or prejudging it, or making arbitrary decisions on something so important.

Julian Lewis: As the co-author of the article to which the Secretary of State referred, may I advise him and the House that it is a sorry state of affairs when a former head of CND and a former leading opponent of CND have to get together to write such an article to try to persuade the Government to let the debate begin? Our key question to the Secretary of State is not will he keep Trident until the end of its useful life, but will he continue to possess nuclear weapons as long as other countries have them? When the people of Britain are asked, two thirds say yes, we should, and one quarter say no, we should not. Hardly anyone is undecided. Why is the Secretary of State undecided?

John Reid: I am decided and I have told the hon. Gentleman what I have decided. Unfortunately, I am in government and he is not—that is really the source of frustration. However, I am glad that he raised the matter, because when we consider what could possibly bring CND and Conservative Front Benchers together on defence—[Hon. Members: "Debate."] It is not a matter of debate. We have debated it at every Question Time; every time we have a debate on defence we debate the issue, so it cannot be lack of debate that brought them together. The fact is that it has nothing to do with a serious decision about our strategic needs, whether nuclear or otherwise: it is simply that CND and Conservative Front Benchers want to discomfit the Government. Well, they can continue debating, but I am afraid they do not discomfit me in the least.

Gordon Prentice: Last Wednesday, the Prime Minister told my hon. Friend the Member for Sunderland, South (Mr. Mullin) that he wanted to listen to the views of the House. How will he discern those views? Will we just have open-ended debate, or will there be a vote at some stage where opinions can crystallise?

John Reid: The answer to the first question is that I discern those views by listening, although listening does not necessarily mean that I accept them; it depends on the rationale and logic of what is put to me. As regards debate, I find myself in the peculiar position where I am attacked from both sides of the House for not debating the issue and by my hon. Friend for endless debate on it.

Sudan

Tobias Ellwood: If he will make a statement on British forces being deployed to Darfur.

John Reid: The UK continues to play a significant role in seeking to improve conditions in Darfur, through complementary NATO and EU aid to the African Union's observer mission.

Tobias Ellwood: I thank the Secretary of State for that reply, although he did not actually answer my question. After the Live 8 events, on which I am sure the whole House will congratulate Bob Geldof and his team, the world's attention is focused on Africa, nowhere more so than Sudan, where ethnic cleansing and genocide have led to thousands upon thousands of deaths. So, are the Government satisfied that sending a total of 17 soldiers and officers, 15 under a NATO flag and two under a rival EU flag, is really doing enough in what the UN described as the worst humanitarian crisis in the world at present?

John Reid: The hon. Gentleman is right that this matter is important. These are tragic circumstances, in which, perhaps, the response of the world community as a whole has been belated—as it has been in certain other cases. Having said that, if we are to contribute—however much and through whichever mechanism—I think the hon. Gentleman will accept, as do both the EU and NATO, that there must be a lead from the African Union, so we are responding to the request of the African Union. I leave aside the fact that currently our service personnel are in Northern Ireland, Bosnia, Kosovo, Sierra Leone, the Democratic Republic of the Congo, Iraq, Afghanistan and other places. We are actually responding to what the African Union wanted, which is logistical support.

David Drew: Would my right hon. Friend care to give an opinion? He may not have seen last night's "Panorama" programme, which gave a further response to the tragedy in Darfur. It is clear that the AU is doing invaluable work—it is a real test for the AU—but what the AU needs more than anything on the ground is logistical support, which can only come from developed countries such as the UK. So I hear what he has to say, but will he go back and talk to his NATO colleagues and, indeed, those in the EU to find out what additional support can be brought to bear to ensure that the AU is as effective as possible on the ground?

John Reid: Absolutely. I do not think there is any difference of intent between my hon. Friend and me. Indeed, it was precisely at the request of the chair of the African Union to both the EU and NATO that I contributed to the discussions, in the EU on 23 May and NATO, I think, on 9 June. Both institutions have concentrated on heavy-lift capacity, which is supported by ourselves and many others in NATO and Europe, to take in the extra 7,000 soldiers who we hope will be supplied by the African Union. That is precisely what we are doing. I am not saying that it is ever enough, but it is what was asked for by the African Union, which must, after all, take the lead in this matter.

Gregory Campbell: Given any possible international deployment of military personnel, will the right hon. Gentleman give the people of Northern Ireland the assurance that they require that the required military personnel and their bases will be there to deal with the very fluid situation in the coming months?

John Reid: Yes, I can give that assurance.

Michael Moore: As the hon. Member for Bournemouth, East (Mr. Ellwood) pointed out, the world's attention on the Make Poverty History campaign has put more focus on devastated, poverty and conflicted-ridden regions such as Darfur. We certainly believe that there should be more urgency in the international community's efforts to find a peaceful solution, but we welcome the Government's contributions so far. Will the Secretary of State confirm how much of the assistance pledged to the African Union by the Secretary of State for International Development in his written statement on 13 June has now been provided? Given the widespread fears about the scale of the crimes against humanity in Darfur, does he believe that the 7,700 troops committed by the African Union are sufficient for the task in hand? If the force is to be extended, will the United Kingdom and its NATO and EU partners be able to supplement the logistical and technical support offered so far?

John Reid: The answer to the first question is that I do not know how much of that assistance has been delivered at present. If I may, I will write to the hon. Gentleman. The answer to the second question—whether I think the troop numbers are sufficient—is that time will tell, but the number is what the African Union thinks is sufficient at present. The answer to the third question is that we will give whatever help we can. Although that has been diminished to 17 personnel—to paraphrase the hon. Member for Bournemouth, East (Mr. Ellwood)—the UK has, in fact, already provided significant logistical assistance, including approximately 600 vehicles, rapid deployment equipment, air-lift for Nigerian soldiers and technical military advice. On 13 June, we announced an increase in our contribution of £19 million, bringing our contribution to £32 million, on top of everything that the Department for International Development has given. So we have already made a significant contribution, and we will continue to do so, because the situation is tragic.

Andrew Robathan: All hon. Members would agree that this is an horrific situation, which many of us have been pursuing for the past year. Will the Secretary of State explain the bizarre command and control arrangements in Darfur? Contrary to every existing military principle, is it the case that only an EU headquarters is being established because of French antipathy towards NATO and the United States? Does he believe that having two headquarters running one operation will contribute to a successful and efficient operation there?

John Reid: In fact, far from illustrating a dichotomy or contradiction between the two institutions, this has been perhaps the first major example of how the two institutions can work together. Although there have been no formal contacts, there have been informal ones and, indeed, informal meetings, and both the Secretary-General of NATO and the High Representative of the EU have worked very closely. That is to the benefit of the African Union and the people in the area itself, which is as it should be. We have never believed that the European Union security and defence policy and NATO should be contradictory and competitive. One of the principles that I made absolutely plain to both those institutions is that they should work in partnership, in complementing and dovetailing with each other, and they have done so on this occasion to a far greater extent than ever before.

Second World War

Emily Thornberry: What plans are in place to commemorate the role of women in the second world war.

Don Touhig: On 9 July, Her Majesty the Queen is unveiling a new memorial in Whitehall to all the women who served in the second world war, both in the armed forces and on the home front. I pay tribute to the work of Baroness Boothroyd and all those who have made a great effort to make this memorial a reality.

Emily Thornberry: Does my hon. Friend agree that women's contribution to the war effort was made in the way that women so often work, which is that we get on with the work quietly and let the men carry on and get the glory?

Don Touhig: The whole country appreciates and acknowledges the essential contribution made by women in the successful outcome of the second world war both at home and abroad. Without the hard work, courage and endurance of women working in armaments factories, at home and in the forces, we would not be commemorating the 60th anniversary of the end of the last war, a war that allowed us to remain a free people. We owe a great deal to the sacrifices of our forces and to the women of Britain who brought about that wonderful victory.

David Hamilton: Will the Minister accept that there are many hundreds in the House who support the work of the unsung heroines throughout the war, and not just the ones who fought through the war but those who replaced the men to allow the men to go to war or, indeed, down the pits to work? After the women made their contributions, many were left to fend for themselves when their husbands did not come back again. Does my hon. Friend accept that there is great support in the House for this move?

Don Touhig: I consider that one of my priorities as the Minister responsible for veterans is to look across the whole orbit of matters relating to veterans and their families. I have met veterans organisations and will continue to do so in the coming weeks, but I have no doubt of the huge contribution made by the women to whom my hon. Friend refers. Indeed, I opened an event in my constituency only last week and was told by a lady that her son had never known his father, who had been shot down in the last war. She had not heard of the veterans badge, but she was delighted to hear about it. She will now receive a veterans badge which, she says, is a small token and memorial to the sacrifice that her husband made and something that she can pass on to her son.

Anne McIntosh: Will the Minister join me in paying tribute to those who worked in the intelligence services across Europe and to many of the unsung heroes who work for the land army across the country and particularly in the north of England?

Don Touhig: Both will be represented at the living memorial that His Royal Highness the Prince of Wales opens today in the presence of my right hon. Friend the Secretary of State for Defence. Indeed, when my right hon. Friend launched the information for veterans awareness week, a number of veterans appeared. One lady said that she did not quite know what the fuss was about and that she had only been a typist, to which my right hon. Friend replied that that was like saying that Churchill only made speeches. She made a huge contribution, and we value that.

Adrian Bailey: May I thank the Minister for his tribute to my predecessor Baroness Boothroyd, but bring his attention to another very distinguished West Bromwich-born lady, the late Madeleine Carroll, the famous film actress from the 1930s and 1940s who gave up her lucrative and glorious film career to work in French and Italian field hospitals during the second world war? After the war, she worked with UNESCO on helping the children who had been damaged and displaced as a result of the war. She has received tributes and recognition from the United States and French Governments, but not from this Government. Will my hon. Friend look at doing something about that?

Don Touhig: I certainly endorse my hon. Friend's comments. There is no doubt that, during the last war, women were employed in a range of activities that greatly underpinned our efforts and led to our success. I am not aware of the particular issue that he raises, but I will reflect on his comments and be in touch with him.

Territorial Army

Andrew Turner: If he will make a statement on the retention of local Territorial Army detachments.

Don Touhig: The Territorial Army is currently being rebalanced to align with changes to the regular Army under the future Army structures work. I do not anticipate that this will result in significant change to the existing TA establishment or estate.

Andrew Turner: I am grateful to the Minister for that reply, but does he accept that any national decline in recruitment to the Territorial Army is likely to threaten the future of local units, including that on the Isle of Wight? Given that double the Government's planned proportion of 25 per cent. of personnel are either deployed on, or recovering from, operations, what are the Government doing to counter the perception, which can lead to a decline in recruitment, that too great a share of the defence burden is currently being borne by the Territorial Army?

Don Touhig: I take note of the hon. Gentleman's point about the centre on the Isle of Wight. As I have said, discussions will take place about the future of such centres and I shall ensure that he is involved in discussions on that centre.
	I pay tribute to the efforts of our reserve forces in all recent conflicts. They have made a considerable contribution and a huge difference. However, hon. Members on both sides of the House realise that reserve forces do and should play a key role, which is why we are investing in their training for the defence of Britain and to protect our interests throughout the world. I continue to encourage people to become active in the TA. It does an important job and we value its work, as I am sure does the country as a whole.

Keith Vaz: Will my hon. Friend join me in paying tribute to the three local detachments in Leicester and Leicestershire and the work that they do? Will he assure the House that if there are any reviews of the service, sufficient money will be ring-fenced for training?

Don Touhig: I am sure that my hon. Friend appreciates that the rebalancing of the Territorial Army will come to fruition later this year. It would not be right for me to comment at this stage on the possible outcomes of the rebalancing, but I certainly take his point on board and will ensure that it figures in any decision that we reach.

Peter Viggers: Does the Minister agree that our reserve forces have always fulfilled two main roles? First, they provide reinforcement for our regular forces, which is being stressed by overuse. Secondly, and importantly, through having formed units, the Territorial Army and other reserves can provide the framework for the expansion of our armed forces. Does he accept that by weakening the Territorial Army and removing and reducing the number of formed units, he is weakening that role? Does he really feel confident that we will never again need to reinforce and expand our armed forces?

Don Touhig: The difference between this Government and the Conservative Government is that we are committed to reshaping the TA, ensuring that it meets the changing defence environment and making it more capable and effective. That contrasts with a 20,000 cut to numbers in the TA in the 10 years leading up to 1997. The Conservative party made that cut not for military reasons, but because its failed and disastrous economic policies led to cuts in the Ministry of Defence. This Government are totally committed to providing proper and adequate resources for our armed forces, and we will continue to do so. I say honestly to the hon. Gentleman that we need no lessons from his failed party in that respect.

Royal Air Force

Mark Francois: If he will make a statement on the peacetime readiness levels of the RAF.

Adam Ingram: The Royal Air Force continues to meet its standing and contingent overseas operational and enduring home commitments, contributing forces to a number of theatres around the world, including the Gulf, Northern Ireland, the south Atlantic, Afghanistan and the Balkans. A combination of these ongoing commitments, equipment modifications and maintenance programmes has had a minor impact on planned peacetime readiness levels. Work is continuing to address these issues to ensure that the RAF continues to be ready to meet the challenges of today and tomorrow.

Mark Francois: I thank the Minister for that reply, but he will be aware that the Ministry of Defence has recently cut back fast-jet pilots' flying hours again to just 16.5 a month. Is there not a real danger that if Ministers keep salami-slicing the fast-jet training budget in this way, the readiness of our fast-jet pilots will become seriously degraded over time?

Adam Ingram: If that were the case, the answer would be yes, but it is not. We intend to increase the hours next year.

Gerald Howarth: The Minister will be aware that the Red Arrows, whom I had the privilege of visiting earlier this year while they were training, train six times a day to achieve the superb level of display flying that we are proud to witness—indeed, I think he witnessed it over the streets of London this morning. By contrast, as my hon. Friend the Member for Rayleigh (Mr. Francois) said, fast-jet pilots, on whom we depend for air superiority and supporting ground troops, have had their hours cut again to 16.5. Is the Minister aware that yesterday I talked to Chinook pilots, who said that their hours have been cut to 15 a month, and that is when they have enough spares to get the aircraft in the air? Is it not the truth that the recent National Audit Office report was right and that the Government risk gambling with the lives of our front-line pilots, whose essential combat skills can only be honed by adequate training in the air?

Adam Ingram: I think the hon. Gentleman had written down his question before he heard my earlier answer. We obviously have to plan against a range of priorities, and to strike a balance. There is sensitivity about the level of cut. That is always under consideration, which is why we plan to increase the hours next year.
	The hon. Gentleman referred to the NAO report, which also said:
	"the Royal Air Force had recuperated sufficiently by the summer of 2004 to be able to undertake a further medium scale operation and plans to be ready to undertake a large scale operation, if required, by the end of 2006."
	He should read the report in its entirety, and not just be selective in what he quotes.

Iraq (Reconstruction)

Ann Clwyd: What contribution UK armed forces have made to the reconstruction effort in Iraq.

Sharon Hodgson: What assessment he has made of the contribution of UK armed forces to the development of democratic and sustainable political structures in Iraq.

John Reid: I am sure the whole House will wish to express our condolences to the family of Signaller Paul Didsbury of 21 Signals Regiment, who tragically died on duty in Iraq on 29 June.
	British forces are in Iraq at the request of the Iraqi Government as part of the multinational effort to help the Iraqi people achieve stability, democracy and prosperity. Our role is to support the Iraqi Government through providing security. This protects the development of democratic government and institutions and physical reconstruction.

Ann Clwyd: As a frequent visitor to Iraq, I pay tribute to the humanitarian effort of the British military, including the Royal Regiment of Wales, in which some of my constituents serve, in rebuilding schools and hospitals and constructing water supplies. The Iraqi people give the same message every time I go there, which is to ask us to stay the course.

John Reid: I give double thanks to my hon. Friend for that. First, I congratulate her on, and thank her for, her personal commitment and contribution to Iraq over many years. Secondly, by remarking on the role that ourservicemen and women have played in the reconstruction of Iraq—as they have, in many details—alongside building up the Iraqi security forces and alongside counter-terrorism, she pays the type of compliment that is constantly paid to our troops in Iraq itself, where they receive great gratitude. It is a pity, and in some ways a tragedy, as they remarked to me when I visited them, that they do not receive the same gratitude and praise in some of our media at home.

Sharon Hodgson: Will my right hon. Friend provide more information on how UK forces are improving the capacity of the Iraqi security forces to defend human rights, which is vital to Iraqis democratising their country after decades of fascism, and allowing grass-roots organisations, such as women's groups and trade unions, to play their full role?

John Reid: My hon. Friend is right. Our forces are contributing to that in two ways. First, they are contributing towards the training of Iraqi security forces. They also make it plain that, like any other democratic sovereign nation, the Iraqis must take responsibility for the conduct of their security forces. That is why when anything goes wrong, or allegations are made about the misuse of such power, we raise that idea constantly. Secondly, by helping to provide 170,000 trained Iraqi security forces, which for the first time is a greater number than the multinational forces in Iraq, they provide the security framework within which the democratic institutions of Iraq can function. That is happening slowly but steadily. There have been improvements in both security and politics in Iraq. It is not because the Iraqis themselves are not succeeding that furious and frantic terrorist attacks and the murder of innocent civilians have taken place. They have occurred precisely because the Iraqis, with our support, are succeeding in taking democratic control of their own country.

Mark Pritchard: Will the Secretary of State join me in paying tribute to the brave work of the Special Air Service? Can he tell the House what the Ministry of Defence is doing to stop the haemorrhaging of those excellent soldiers to private security companies?

John Reid: First, I join the hon. Gentleman in offering plaudits to the SAS and, indeed, all the special forces. Far from our special forces contracting, those who give them associated support and the special forces themselves are in the process of expanding. I may have more to say about that at a future date.

Harry Cohen: The British health charity Medact said in a report six months ago that the war and the ensuing insurgency created
	"the conditions for further health decline".
	Significantly, it went on to say:
	"The worst affected appear to be some 150,000 people in the south of Iraq, including Marsh Arabs".
	Services in that region are described as "rudimentary" or "completely lacking". That is our area of control, so why have British forces not done enough or focused on the problem to win over hearts and minds?

John Reid: If my hon. Friend wishes to give me details of those allegations, I will look at them. However, our forces have a worldwide reputation for handling very difficult situations, particularly in areas such as Multi-National Division (South-East) in such a way as to win over hearts and minds. All my experience shows me that, notwithstanding the difficulties of operating in a theatre of strategic importance to international terrorists—that is why they do not want it to succeed—our troops are doing a marvellous job there.

Michael Ancram: May, I, too pay tribute to Paul Didsbury? May I also pay tribute to our troops in Iraq for their enormous contribution, which I have seen, to reconstruction in south-east Iraq? However, is not security the key to reconstruction, and have not our forces played a central role in providing the security without which reconstruction would not have been possible? Can the Secretary of State tell the House how many of the newly trained Iraqi battalions would be capable today of operating independently and taking over responsibility for security and reconstruction in Iraq?

John Reid: First, I thank the right hon. and learned Gentleman, a great supporter of our forces, for his sincere and well-meant plaudits. Secondly, approximately 170,000 Iraqi security forces—about 5,000 to 10,000 more than was the case last time we had Defence questions—are now sufficiently trained gradually to take the lead in counter-terrorism. That will not be done overnight, but it is important that the House distinguishes between two propositions. First, as was made plain by Secretary Rumsfeld recently—I have discussed this matter with him—it may be a considerable time before terrorism is defeated in Iraq. Secondly, it may be a much shorter time before the Iraqis themselves can take the lead in combating that terrorism. The time scale that Mr. Rumsfeld envisaged is not necessarily the time scale during which our troops would have to be in Iraq, and I look forward in the next year to the Iraqis beginning to take over the lead role in counter-terrorism in some of the 18 provinces of Iraq.

Michael Ancram: We often speak—rightly—about staying there until the job is done. Could the Secretary of State define more precisely on what basis the judgment will be made as to when the job is done? Is he talking about the job in the whole of Iraq or just in our area of MND (South-East)? If it is the latter, does that mean that once the job in our area is done, whatever is happening elsewhere in Iraq, our troops can come home?

John Reid: The right hon. and learned Gentleman asks an important question. May I explain the context? There are 18 provinces in Iraq. Despite the fact that we hear constantly about widespread terrorism, more than half those terrorist attacks are taking place in four provinces. There are another two provinces in which some attacks take place. By and large, about 12 of the provinces are relatively free of terrorist attacks. As the Iraqi forces become trained to take the lead, it is possible, over a period of time, to hand the lead role to Iraqi forces in certain areas of the country and gradually, we hope, over the whole country. For a period in all these areas they will require some support and back-up from the Multi-National Division. If that day comes in our area, we have not decided on and do not have any plans for operating outside MND (South-East), but it is impossible to make those decisions before we get to that stage.
	The other point—at the risk of going on too long, Mr.   Speaker—is that we hope that that security development will be simultaneous with the development of political democratic control through the constitution, then the referendum, a new election and a fully democratic Government by the end of this year.

Afghanistan/Iraq

David Taylor: What recent assessment he has made of the security situation in Afghanistan.

Adam Ingram: Right hon. and hon. Members will be aware of the recent tragic loss of life resulting from the loss of a US helicopter last week. I am sure the House joins me in extending our sympathies to the servicemen's loved ones.
	Overall, the security situation in Afghanistan is stable. The United Kingdom and our international partners in both the coalition and the NATO-led international security assistance force continue to support the Government of Afghanistan in building a safe and prosperous country.

David Taylor: The loss of the Chinook helicopter last Tuesday was a major tragedy and evidence of a deteriorating situation made worse by a dangerous mix of foreign insurgents, tribal warlords and weak Afghan institutions. Does my right hon. Friend agree that the US-led war on terror is in danger of being derailed by these events? Have the military strategic planners at Northolt made emergency proposals to send thousands of British troops to Afghanistan in order to head off a bloodbath in the run-up to the elections planned for later this year?

Adam Ingram: I do not wholly accept my hon. Friend's analysis. I do not believe the situation is deteriorating. Incidents can occur because contact has been made with people who are being pursued because they are intent on making the situation worse. We should recognise the bravery of the US troops on the front line and other troops in Afghanistan who are taking the situation on. I also do not believe that the war on terror, as it is described, is in danger of being derailed by these events. The presidential elections were highly successful; we must ensure that the general election is equally successful. NATO is currently planning to strengthen the presence there to ensure that that happens. We have no plans to send thousands of our own personnel, although we are considering what the future position should be as of next year. The headquarters of the Allied Rapid Reaction Corps is going there, which will be an important element in strengthening capabilities in Afghanistan. What taskforce goes about that is subject to considerable planning, and we will make an announcement to the House once that is mature.

Tony Baldry: Is there not a growing conundrum for British forces in both Afghanistan and Iraq, in that non-governmental organisations and international agencies look to them for their security and safety, yet simultaneously are concerned about being identified with British forces lest they be seen as part of the occupying forces generally? How do the Minister, the Secretary of State and the Ministry of Defence propose to reconcile what will become an increasingly difficult conundrum in both Afghanistan and Iraq?

Adam Ingram: There is no easy answer to that. It does not matter where peacemaking/peacekeeping is taking place. The moment the non-governmental organisations are closely engaged with enhancing the stabilisation of any country, in terms of reconstruction or whatever else, there must be a measure of guarantee for them, but they do take risks. Tragically, lives have been lost among NGOs and civilians, and we pay tribute to them. They are brave people. There is no simple solution. Overall we must ensure as best we can that the environment within which they work is stable and that, in the case of Afghanistan, the Afghan national army has primacy and there is a civil power to build the normal trappings of a state so that those who commit wrongdoings are brought to justice, as well as tackled militarily, if need be, to create an overall stable environment. I pay tribute to all those who seek to create the new conditions for which the Afghan people so earnestly wish. They do a tremendous job and I think that they will do more in the years ahead.

Kevan Jones: Will my right hon. Friend commend the work of the British provincial reconstruction team at Mazar-e-Sharif and also the work of the other PRTs throughout Afghanistan, which are working hard to bring not only security but development to areas outside Kabul? Will he give a commitment to the work of the British PRT? Are there any plans to extend other PRTs throughout Afghanistan to bring the stability that is needed, particularly in the south?

Adam Ingram: I share the compliments that have been paid by my hon. Friend to the PRTs. I visited the PRTs, and I think he did so as well, in Mazar-e-Sharif. I understand that those deployed by the Americans, the Germans and others have also been successful. It is a successful model. As we move from the north to the west—that development is now making good progress—and progressively into the south, we must consider the benefits that can be gained from the establishment of a PRT. That is being examined. Valuable lessons have been learned. I pay tribute to all the hard work that is taking place.

Edward Leigh: How many service personnel are deployed in Iraq and Afghanistan; and what the future plans are for British troops in Iraq and Afghanistan.

John Reid: There are currently around 8,500 service personnel deployed in Iraq and about 1,000 deployed in Afghanistan. We keep the deployment of our armed forces to both Iraq and Afghanistan under constant review.

Edward Leigh: If we are to continue to keep large numbers of troops deployed in Iraq, what guarantees can the Secretary of State give on their state of readiness in the light of the National Audit Office report, published a fortnight ago—this was a central part of the report and it is not a selective quotation—that almost 40 per cent. of all our armed forces suffer from severe and even "critical weakness" in their readiness? Is this not a vital matter that the right hon. Gentleman has to address? There is no point in committing these troops if there is not sufficient back-up to ensure their state of readiness.

John Reid: Our forces in Iraq are at a high state of readiness. As for our other forces, in Afghanistan, Bosnia, Kosovo and the other areas to which I have referred, I think that that stage and level of deployability of our forces in action is recognised, and that it is not possible to keep every member of our forces at the highest state of readiness. There will be a percentage who are at less than the highest state of readiness. I do not believe that the NAO said that 40 per cent. of our forces were at a serious and "critical" level. It stated:
	"The Department has an increasingly good understanding of the risks to readiness and good plans in place to mitigate them."
	We should take a balanced view because the report was based on the NAO's self-critical analysis of the state of readiness, to which we have had regard to help us to plan and overcome any deficiencies.

Army (Manpower)

Julian Brazier: What the trained strength of the (a) regular and (b) Territorial Army is.

Don Touhig: As at 1 May 2005, the whole trained strength of the regular Army was 102,260. The trained strength of the Territorial Army is 25,900; that includes 1,430 mobilised TA and 1,080 non-regular permanent staff.

Julian Brazier: That figure for the Territorial Army represents yet another fall. While Territorials greatly welcome the opportunity to support their regular counterparts, does the Minister accept that the Territorial Army is now grossly overstretched? Does he further accept, in relation to the review that he mentioned in answer to a previous question, that it is essential to address the size of the establishments of the individual units, particularly in the infantry? A company of 100 men is simply not enough to develop recruits within the establishment, to send people abroad as part of the deployment, and still to have a critical mass left to do the essential training that the hon. Member for Leicester, East (Keith Vaz) mentioned earlier.

Don Touhig: I know of the hon. Gentleman's deep interest in these matters and take on board the point that he makes. However, let me say to him that whatever size the TA arrives at, and whatever tasks it is assigned, it needs to be relevant, usable and above all fully integrated into the Army's readiness cycle. That is the view of the hon. Member for Mid-Sussex (Mr. Soames), and I concur with it.

Points of Order

Kate Hoey: On a point of order, Mr. Speaker. Would it be in order to ask whether you have had any communication from the Home Secretary about coming to this House to give a statement on the increasingly worrying situation of the 90 hunger strikers from Zimbabwe, and particularly the case of Timbha Mqhubeli, who has now been on hunger strike for one month? This is a very serious situation. Have you heard anything from the Home Secretary?

Mr. Speaker: It is not a matter for me.

Alistair Burt: Further to that point of order, Mr. Speaker. Yesterday, I visited Yarl's Wood detention centre in my constituency and met several of those who are currently refusing food. They are extremely distressed at reports of the situation in Zimbabwe, and their concerns about what might happen to them on their return appear to be vindicated by a story in this morning's edition of The Times. Have you received any communication from the Foreign Office to the effect that the Foreign Secretary wishes to address the House on whether the situation is safe for detainees to be deported there?

Mr. Speaker: I can tell the hon. Gentleman and the hon. Member for Vauxhall (Kate Hoey) that when Ministers wish to make a statement, they inform me, and they have not informed me today. Had it been the case, we would have heard from Ministers today. If hon. Members, including Back Benchers, feel that matters are so urgent and of such deep concern, there is nothing to stop them putting in a request for an Urgent Question. That does not mean to say that I would grant it, but it is a facility that I can use. However, Back Benchers have not done that.

Opposition Day
	 — 
	[4th Allotted Day]

Local Taxation

Mr. Speaker: I inform the House that I have selected the amendment in the name of the Prime Minister.

Caroline Spelman: I beg to move,
	That this House notes with concern the increasing burden of local taxation; awaits the outcome of the Lyons Inquiry but rejects the proposals for a local income tax; asserts that a local income tax would entail higher taxation on hard-working families and crippling compliance costs on local businesses and would undermine the incentive to work; believes that council tax must be reformed, with the introduction of an automatic discount for pensioners and other measures, but rejects proposals to move from a local services tax based on fixed property bands to a wealth tax; calls on the Government to reject the Mayor of London's proposals for a regional income tax in London and to cancel its plans for a council tax revaluation and higher bands in England, which would be a further stealth tax, particularly on those living on fixed incomes.
	We sought this debate on local government taxation because the subject of council tax and local government finance was notable by its absence from the post-general election Queen's Speech, although it is anticipated that the Government will take measures to reform local government finance in this Parliament. We seem to have been waiting interminably for the outcome of the Government's review of local government finance, and while the issue of council tax burns the Government continue to fiddle—in this case, the figures.
	It is the moment when people write their cheques for the council tax that they associate most directly with the   role of local government. However, that is an increasingly misguided association, because since 1997 the Government have riven apart the connection between council tax and the provision of local services. It is certainly not the case that the cost of local services is met by local taxpayers; now, local taxpayers merely top up the Chancellor's coffers. From the Chancellor's point of view it makes perfect sense: by turning local authorities into tax collectors, he hopes to escape the blame for a whopping 76 per cent. increase in council tax.
	However, the electorate are increasingly sophisticated. According to MORI, 78 per cent. of the population blame national Government for council tax increases—and they are right. Furthermore, they know that the figures are being fiddled. The Government have systematically engineered the redirection of central funding from efficient Conservative-run councils to inefficient Labour-run councils.
	At the same time, the Government have set about loading unfunded cost burdens on local authorities and transferring costs and duties from national Government to local government. I call that stealth taxation by statute. The net effect is that receipts to the Treasury from council tax have increased by more than £9 billion since 1997. Without doubt, council tax has been used as the ultimate stealth tax. While pensioners protest on the streets, the Chancellor is coining it.

Mark Prisk: I am sorry to interrupt my hon. Friend's flow, but is she aware of the deep anger not only in my constituency but throughout Hertfordshire, where pensioners are finding that their council tax bills have nearly doubled under the Government? Does she share their concern?

Caroline Spelman: I share that concern and feel it deeply. We all read the headlines about people being threatened with prison for not paying their council tax. We are all lobbied by organisations that call for the abolition of council tax and we all witness the growing disregard for local government among voters.
	Instead of trying to arrest the drift, the Government are moving in the wrong direction and hastening it. The warning signs are so clear and the symptoms are so obvious that ratcheting up council tax must be part of a broader plan. How else can we explain the forthcoming revaluation, which is hanging like a sword of Damocles over people's heads? Despite claims that it will be revenue neutral, the revaluation shows every sign of punishing people simply because the value of their property has appreciated.

Nick Raynsford: Is it Conservative party policy that there should be no revaluation? If so, how is leaving the level at that of 1991 compatible with a system that is based on property values?

Caroline Spelman: I am sure that the right hon. Gentleman's colleagues are sorry to lose him, with his expertise and knowledge, from the Front Bench. However, he knows as well as I do that the point of revaluation should be to address growing disparities in property prices when they arise. Those disparities are narrowing.
	Let us consider the Welsh revaluation experience. Four times as many homes moved up a band as went down. The revaluation, which the Government solemnly promised would be revenue neutral, was used to jack up council tax bills by 10 per cent. in the first year alone.

Alan Whitehead: Does the hon. Lady accept that, when the Conservative Government introduced the council tax, revaluation in general was part of the principle? Why has she decided to depart from her Government's revaluation policy and invent a spurious new version of revaluation, which appears to have no possibility of working in the real world?

Caroline Spelman: The hon. Gentleman may want to discuss extensively the history of my party's introduction of the council tax. However, if he gets the chance to make that speech, he should deal with the fact that the revaluation measure was not part of the council tax when the Conservatives introduced it. The Labour Government's legislation introduced the revaluation.
	On the basis of the Welsh experience, council tax payers in England have every reason to fear revaluation. Even worse, it transpires that, unlike in Wales, the Government will not fund transitional relief when homes in England are revalued. I wonder who will end up footing the bill for transitional relief. I received a parliamentary answer last week, and yet again it transpires that council tax payers will foot the bill—the same council tax payers who will have an army of clipboard inspectors descending on their homes and listing any improvements so that they can be taxed on them. Perhaps there is scope for a new generation of home makeover shows, in which Carol Smillie and workmen dismantle home improvements to help people reduce their council tax. It could be the window tax of the 21st century. We could end up explaining to our grandchildren why extra bedrooms and bathrooms had to be mothballed to avoid tax.
	As if revaluation were not bad enough, the Government are keen to introduce new, higher tax bands. The inevitable consequence is higher council tax bills.
	It so happens that I was in Cheadle this morning. That is precisely the kind of prosperous area that will be hit be the revaluation. If the Welsh experience is repeated there, the average home will go up by two council tax bands, adding more than £500 to the average bill. There is also every sign that the imposition of cost burdens from the centre will continue to rain down on local authorities, forcing up costs and driving up council tax bills. There is no better example of that than the case of identity cards. On 8 June, the Minister of Communities and Local Government stood at the Dispatch Box and refused to rule out local authorities having to pick up the bill for administering that invidious scheme.

Andrew Turner: My hon. Friend mentioned her visit to Cheadle this morning. Would it be in order for me to ask her whether she knows which way the Liberal Democrats voted on council tax rebanding and revaluation?

Caroline Spelman: My hon. Friend will not be surprised to learn that I can provide the answer to that question in glorious detail. On 10 March, 17 July and 10 September 2003, the Liberal Democrats voted with the Government to introduce rebanding and revaluation.

Sarah Teather: Will the hon. Lady give way?

Caroline Spelman: The hon. Lady will have her chance to speak. At the moment, I am addressing my remarks to the Government.
	In tandem with what the Government are doing, they are also stripping away services that were previously centrally funded. Community and neighbourhood wardens are a case in point. In the light of that, I must return to one central question: why are the Government determined to drive up the council tax? Why are they manipulating the funding formulas and pushing ahead with the ugly twin sisters of revaluation and rebanding? Is it because the cost of providing local services has gone up disproportionately? Is it because people are using a lot more locally provided services? Is it because town halls across the country need to amass funds? No, it is because the Government are systematically turning council tax into a proxy for central taxation in order to fill the Chancellor's economic black hole.

David Davies: Has my hon. Friend noticed that there is not one single Labour Member of Parliament in the Chamber today? Does she agree that that might be because they are thoroughly ashamed of the way in which the Labour Administration in the Welsh Assembly told people that there would be winners and losers under this system, when in fact one in three people have seen their council tax go up while money has been squandered by the Labour-run Welsh Assembly?

Graham Allen: On a point of order, Mr. Speaker. In order to be courteous to the hon. Gentleman, would it be in order for me to pass my spectacles over to him, so that he can see the Labour Members who are present today?

Caroline Spelman: My hon. Friend the Member for Monmouth (David T.C. Davies) has excellent eyesight, Mr. Speaker, and he has made the very astute observation that there are no Welsh Labour Members in the Chamber today. I wonder why that might be—[Interruption.] I see that the hon. Member for Cardiff, West (Kevin Brennan) has taken his place—just in time!
	Some Labour Members might welcome council tax inflation as a means of wealth redistribution. The last time we debated this matter, I detected a real enthusiasm among them for new upper council tax bands. But council tax is not a wealth tax; it is a local services tax that is partly based on property to reflect the fact that larger properties typically make slightly greater use of public services. The swingeing increases that we are now seeing have hurt some of the poorest people, and that is what is so unjust. People on fixed incomes, notably pensioners, suffer more than others as a result of the Government's abuse of the council tax.

Michael Jabez Foster: The hon. Lady is quite right: the system is tough on those on fixed incomes. But how would that be helped by the policy proposed by the Conservatives—at least at the last election—to freeze Government support to local government, which would push council taxes up even further?

Caroline Spelman: The hon. Gentleman fundamentally misunderstood our policy at the last election, and I cannot believe that he is suffering either shortness of sight or deafness. We campaigned at the last election on giving a 50 per cent. discount on council tax to over-65s, which was fully funded and costed.
	The Government will counter that with talk of council tax discounts, but the truth is that take-up of those discounts is abysmally low. There are several reasons for that: the length and complexity of the paperwork is daunting; the questions are demeaning, particularly for pensioners; and let us face it, the present scandal surrounding the tax credit system could hardly be a greater deterrent to would-be claimants. Soaring council tax bills not only present problems for people in terms of meeting the cost; a series of contingent problems arise from the way in which the system has been abused. It is a perverse system, which penalises efficient councils by giving them a relatively small central Government grant, forcing them to put up council tax. Council tax duly goes up, and the Government hit that authority with a capping order. That is a crazy way to proceed—it is the fiscal equivalent of splat the rat.

Brian Binley: Is my hon. Friend aware that the rumour in local government circles, emanating from the Local Government Association, I think, is that this year an increase of 1.7 per cent. in the revenue support grant is being planned, with the exception of education, for which it is said that an increase of 4 per cent. is being planned? Does she consider that that will extend the concept of stealth tax?

Caroline Spelman: My hon. Friend is right to point to a pattern that we have seen before. After the general election of 2001, the pattern was of council tax rising steeply as the Government recovered their financial position. Once again, after the 2005 election, we fear the worst. Not only is the process flawed and costly but it puts local authorities in the position of having to cut services on which local people often rely. Typically, those tend to be the sorts of services used by some of the most vulnerable in our society.
	As the situation stands, everyone except the Chancellor loses out. I sincerely hope that he had a pang of guilt when he offered a one-off £200 payment to pensioners for this election year only. The Conservative party proposed a 50 per cent. discount for over-65s, year on year, properly costed and fully funded.

Sarah Teather: The hon. Lady has made several elusive suggestions that she might reform council tax, but has not provided any options for its reform. In fact, she seems very much in favour of keeping it exactly as it is, and probably making it a good deal worse. Would she like to explain?

Caroline Spelman: I am about to come on to the Liberal Democrats. A great deal can be said on the subject, but I was hoping that the hon. Lady might use her intervention to tackle the question of her party's stance—voting three times with the Government for rebanding and revaluation, which we opposed.

Sarah Teather: Will the hon. Lady give way?

Caroline Spelman: No, the hon. Lady has an opportunity to reply, and I have a series of questions that I want to ask about Liberal Democrat policy. She might wish to cover those points when she makes her speech.

Daniel Kawczynski: Will my hon. Friend give way?

Caroline Spelman: I would like to make a little progress.
	The Liberal Democrats voted in favour of revaluation and rebanding, despite telling people on the doorsteps that they were opposed to both. There is nothing like saying that one is a principled party of opposition—because, let's us face it, such actions are nothing like those of a principled party of opposition. As for the local income tax plan, it was certainly interesting, not least because of the rancour that it has created within the Liberal Democrats. As the Liberal Democrats' president, the hon. Member for North Southwark and Bermondsey (Simon Hughes), said:
	"I don't think in the end it worked well".
	What local income tax has in its favour is that it is easy to market, but it is often the case that the devil is in the detail. The campaign pitch is simple enough—the amount of tax that one pays locally is determined by one's level of income. But I think the Liberal Democrats should be had up by the Advertising Standards Authority for their slogan, "Axe the Tax". The Liberal Democrat Treasury spokesman—the hon. Member for Twickenham (Dr. Cable)—himself admitted that two full-time earners in a house would pay more tax, and said that the tax would bite when a combined salary was between £30,000 and £40,000 a year. A pensioner with savings or investments would be taxed on them, so it is rather disingenuous to suggest, as the Liberal Democrats have, that local income tax is a panacea for pensioners. It certainly is not.

Daniel Kawczynski: The biggest pressure on councils such as Shrewsbury is caused by the Labour Government's targets for affordable housing. The council must provide 500 affordable housing units in the foreseeable future. Yet in 2003, the Government took away Shrewsbury's local authority social housing grant. That has placed a tremendous financial burden on my council, which must provide for a target set by the Government.

Caroline Spelman: That is a very good point, which illustrates what I was trying to say. The Government, in a sense, set up well-run councils to fail through their system of targets and fiddle-funding of the central grant.
	The local income tax would also ratchet up bills for hard-working families, especially those with dual incomes. A typical working family in England would pay an extra £692 a year, an increase of two thirds. Not only would the tax apply to people who have hitherto been exempt from council tax; students with part-time jobs are a particularly striking example of people who could ill afford being heavily taxed under the Liberal Democrats.

Simon Hughes: So that the hon. Lady does not keep repeating things that are not true, I should tell her that every member of our party stood on the basis of abolishing the council tax and agreed with that, and every member of our party stood on the basis of replacing it with a local income tax, and agreed with that as well. Yes, there were criticisms of some of the presentation—I criticised it myself—but the substance is clear. The policy of the hon. Lady's party is "Council tax: we want to keep it". We had a clear alternative, although we can argue about whether it was right. The hon. Lady never had one.

Caroline Spelman: I am not sure that the hon. Gentleman's intervention has really helped his party. He does not deny that his policy has not worked very well. The local income tax would not be a win-win; it would be a win-lose. Pensioners with savings would lose out, hard-working families would lose out and young people, typically sharing accommodation, would certainly lose out. As for the councils that would have to administer the tax, their ability to plan would be hampered in the medium term because revenue derived from income is by nature less predictable than revenue derived from house values.
	Councils would also become slaves to Whitehall funding. The tax would necessitate more equalisation. A local income tax offers limited redistribution of the tax burden, but disregards the feelings of many pensioners who instinctively dislike the idea of their tax liability being transferred to their children and grandchildren. As I said earlier, pensioners are proud people and are prepared to pay their way. It stands to reason that they would be distinctly uneasy about their families picking up the bill for them. Let us take a practical example. A typical working family in Cheadle would see their average tax bill rocket by over £1,000 under the Liberal Democrats' income tax.

Alan Whitehead: Perhaps the hon. Lady could explain how the Conservative proposals in the motion to give pensioners a permanent rebate on their council tax—which would presumably have to be replaced by central taxation to provide a Government grant—differs fundamentally from the Liberal Democrat proposals as she has described them.

Caroline Spelman: The hon. Gentleman misses the point, in terms of what his Government have done to pensioners by abusing the council tax. One third of the increase in the basic state pension has been snatched back because they are having to pay council taxes that have been increased by more than the rate of inflation.

John Butterfill: Before we leave the question of revaluation, which was supported so avidly by the Liberal Democrats, may I ask whether my hon. Friend agrees that it would be absolutely wrong if it led to areas with large increases in property values being at a disadvantage in comparison with areas with smaller increases? Services would cost approximately the same, but areas with higher property values would receive less money from the Government.

Caroline Spelman: I thank my hon. Friend for that intervention. He accurately points out that such a measure is redistributive. It is very attractive to a party that calls itself new Labour, but which is at its heart still socialist. I understand where it is coming from.
	Permit me to give an overview of the impact of local income tax on a typical community. A pensioner with savings and investments would be taxed. A young person who is sharing a flat or in part-time work as a student would be taxed. A young family with a dual income and a mortgage, trying to make their way, would be taxed to the hilt. On top of all that, a local income tax would co-exist with a whole raft of other taxes, including regional income taxes to fund the network of unelected and undemocratic regional assemblies that have leached power away from local communities.
	Presumably, the Liberal Democrats support London Mayor Ken Livingstone in his quest to introduce a London-wide regional income tax. As the Association of London Government has recently observed, this could mean up to 6 per cent. on the basic rate of income tax for Londoners.

Alison Seabeck: The hon. Lady says that she is opposed to rebanding, to revaluation, to local income tax and to the Lyons review. She says that she would give £500—or was it £50?—to all pensioners, be they Margaret Thatcher or my granny, who was pretty poor. What about the other groups about which she has been talking? What are the measures that she is going to promote?

Caroline Spelman: Before making an intervention that is an attack on my party's policy, the hon. Lady should acquaint herself with its detail. In addressing her very real concerns, I remind her that the sum in question is not £50. We are talking about a 50 per cent. increase, which is a significant increase, as I am glad she acknowledges. I further remind her that the figure is capped at a maximum of £500 in order to address the very point she makes. So we did take into account those two important details.

Linda Gilroy: Earlier, the hon. Lady kindly offered to give away some glasses. Perhaps she might repeat that offer, because if she looks at the small print of her party's proposal, for which one might well need glasses, she will see that—unlike the Chancellor's offer, which will help 19 out of 20 pensioners—it would help only one in four pensioners.

Caroline Spelman: The underlying point is that our proposals would help more than 5 million pensioners. Moreover, it is a year-on-year payment, not this one-off payment of £200. Under such a proposal, what happens the following year? How does the hon. Lady think pensioners felt about that proposal during the election?
	Perhaps the Liberal Democrats should listen to the words of Andy Mayer, director of their think-tank, Liberal Future. He said that
	"we're not convinced that the association of income tax with fairness is correct".
	My frustration with local income tax is that it purports to be the cure-all that it patently is not. Many Liberal Democrats know it and have admitted as much; as the proposal comes under greater scrutiny, the voters will also come to know it. It is a distraction from the important question of how we can make local taxation fairer to everyone. By persisting with local income tax—that said, I understand that its future as party policy is in some doubt—the Liberal Democrats are effectively ruling themselves out of this fundamental debate.

Paul Rowen: rose—

Caroline Spelman: All this is taking place against a backdrop of uncertainty as we await the outcome of the Lyons review—a review commissioned to assess the previous review of local government finance. But the fact is that this Government have hidden behind reviews, sympathetic words and one-off pre-election handouts, instead of grasping the nettle and addressing the fairness issue that bedevils the current situation. I think that I am safe in presuming that we are some time away from another general election, so this is the time when—away from the heat of battle—we can really engage with the problems of local taxation and restore a genuine link between local taxation and local services.

Several hon. Members: rose—

Caroline Spelman: That is critical. We need to abort the process of subordinating local government and reinvigorate local democracy instead because the alternative is to foster more resentment and more economic hardship: we will then have witnessed the still birth of a new localism.

David Miliband: I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
	"welcomes the Government's continuing support for local government with its 33 per cent. grant increase since 1997; notes that the average increase in council tax in 2005–06, at 4.1 per cent., is the lowest increase in a decade, the second lowest ever, and lower than the last three council tax settlements for which the previous Government was responsible; welcomes the Government's engagement with councils to facilitate the delivery of 2.5 per cent. annual efficiency gains in local government; and looks forward to the conclusions of Sir Michael Lyons's inquiry as an important contribution to securing a fair and sustainable system of local government finance for the future."
	I welcome the debate and hope that, at the end of it, the watching millions are as informed and passionate on the subject of local government finance as the small band of experts who follow these matters carefully. I hope that the House will agree that, among the small band of experts who follow local government, and particularly local government finance, one man stands out. I pay tribute to my right hon. Friend the Member for Greenwich and Woolwich (Mr. Raynsford), and remark that this particular debate on local government matters is unusual in that he is not speaking from the Front Bench. By the end, many may wish that he were, but I know that I speak for the whole House when I say that he was always the most courteous Minister. However naive or inane the question, he always tried to answer it fully. Anyone who believes in the health of—[Interruption.] The hon. Member for North-East Bedfordshire (Alistair Burt) should listen to this; if he did, he might agree with it. Anyone who believes in the health of local government must believe that my right hon. Friend's contribution was immense.
	When I took up the post, my right hon. Friend congratulated me and told me that it was the best job ever, yet I now read in this week's "Municipal Journal" that he believes local government finance is "a nightmare subject", so it turns out that he is a bit of a spin doctor himself in these matters.
	I also want to welcome the hon. Member for Brent, East (Sarah Teather), who was cruelly denied the opportunity to speak to us during the Queen's Speech debate, but will now be able to do so. She may not realise that Opposition motions are usually a chance for the Opposition to attack the Government. It must be strange for her to feel that this time she is the Government, given that she was so often the subject of   the speech of the hon. Member for Meriden (Mrs. Spelman). Listening to that speech, I began to feel that the two Opposition parties were becoming concerned about the fight for second rather than first place—[Interruption.] I hope that the hon. Member for Brent, East will take it as a compliment to be so roundly attacked by the hon. Member for Meriden, but she must look out for Martin Miller on the side track in Cheadle, as he is mounting a strong campaign for the governing party. She had better not take her eye off him.
	I want to make three main points in the debate. First, it is possible to talk about local government taxation and, therefore, income for local government, only if one is willing to talk about expenditure as well. Secondly, there is a balance of income sources for local government and they need to be understood together. Thirdly, the Lyons inquiry, following the balance of funding review, offers a special chance for the country to find a sustainable way forward for this important issue for our quality of life and the quality of our democracy.
	In that context, I have to tell the hon. Member for Meriden that it was disappointing that, after 27 minutes of her speech, she should turn to our proposals and then finish before the 28th minute had passed. I am sure that we shall get to hear the details of the Conservative party proposals—[Interruption.] Yes, it must have been an oversight on her part. I am sure that among the many sheaves of paper that she has with her are her detailed proposals. We look forward to hearing all about them in due course.
	Let me talk first about local government expenditure, because it is expenditure that drives taxation—national and local. Local government is at the heart of national life and it has a unique role in championing the communities that we live in and helping them to prosper. The four pillars of local area agreements for local authorities over the next two years cover enterprise and economic development, safer and stronger communities, healthier communities and older people and children and young people. They provide a clear and sensible way of thinking about the arithmetic of local government.
	In 2004–05, local government in England spent £127 billion—a quarter of all public expenditure. The largest share, at 37 per cent., goes on education. Social services spending represents a further 18 per cent. and the police another 11 per cent. Those three services make up 65 per cent. of the total net current local government expenditure. Of that share, 65 per cent. goes on the pay of teachers, police, fire fighters and other local government workers. The share of spending on staffing costs varies, from transport, where it is relatively low, to education, where it is quite high.
	In preparing for the debate, I was interested to see that, over the last 30 years, local government spending has risen at more or less the same rate as national spending. The pressures do not follow the business cycle as central Government spending did in the 1980s, but instead reflect real need in areas such as social services, where an ageing population, higher dependency costs and increases in areas such as care home fees are placing pressures on local authority budgets. The same goes for community safety—the hon. Lady mentioned neighbourhood wardens and I hope that we can take it from her remarks that she will support the drive to extend that scheme all over the country. It also applies to waste services, where we must manage ever-increasing quantities of municipal waste in ways that minimise its impact on health and the environment.
	Local government is responsible for spending decisions in all those areas, but the imperative to control cost is clear and present.

Edward Davey: Will the Minister confirm that the passporting of school budgets and ring-fencing of other budgets has made it more difficult for local authorities to manage their budgets prudently?

David Miliband: That is often said, but the hon. Gentleman will know as well as I do that many local authorities spend above the ring-fenced or passported level on education, to some 108 per cent. to 110 per cent. nationally. My impression is that the commitment of the Government to make education the No. 1 priority is widely shared across the country.

Eric Pickles: If education and the like are ring fenced, the growth in other services that do not have that benefit that the Minister mentioned is distorted. After all, 12 local authorities received no additional grant once the money had been expended on education. Does he accept that the more areas the Government control, the more they distort the market?

David Miliband: The Government make no apology for saying that the money we raise for education—our top priority—needs to go on education, and I am pleased that local authorities have supported that. On the hon. Gentleman's wider point, if money is specified for one function, it cannot of course be spent on another. However, I am sure that he is pleased, as I am, at the development of the local area agreements that allow local authorities to move money across the piece, because such agreements contribute to the vibrancy of local government, in which I know he believes.
	The evidence of the Government's determination to control costs as well as to support local government can be seen in the average increase of 4.1 per cent. in council tax this year, but it is also evident in our drive for efficiency. The Government can play a lead role in that area. That is what we have done through the Gershon review, which has set challenging efficiency targets for local authorities of up to £6.5 billion by 2007–08. For our part, we will continue to work with local government to ensure that those targets are met and the money is then properly spent.

Geoffrey Clifton-Brown: The Minister will know better than most that, although he says that local authorities have control over various spending decisions, they in fact do not, because various matters are controlled by the Government—in particular, the increases in taxes that they have put on local authorities, in the form of pensions tax and national insurance. The Government also keep putting unfunded duties on local authorities—for example, local authorities have to comply with the waste directive and face increases in the landfill levy. The Government have also reduced local authority housing grant, as my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski) mentioned earlier. More than the entire increase that the Government have given local government in the past seven years has been taken up by increased taxes and duties.

David Miliband: We can have a debate about national insurance every day of the week as far as I am concerned, but the Conservative party made no proposal to reverse the 1p increase in national insurance that the Government introduced and it is money that has been well spent by the national health service. It is also churlish of the hon. Gentleman not to thank the Government for the £120 million increase in grant for his local authority in the past eight years—in stark contrast to the performance of his party in power.

Brian Jenkins: Can the Minister confirm, off the top of his head, that, over the past 20 years, the amount of spending raised by local councils has been some 25 per cent. and the amount provided by the Government has been 75 per cent., irrespective of the ever-growing burden that this Government are alleged to have put on local councils?

David Miliband: My hon. Friend makes a good point. The amount is certainly about 25 per cent. at present. Of course, there was a certain rupture in the way that local government was organised under the poll tax and, although I am sure he and I could talk for a long time about the vagaries of the poll tax, we are trying to look forward today.

David Davies: Is the Minister confirming that there is an irrefutable link between the amount of money that local authorities receive from central Government and the amount they have to levy through council tax?

David Miliband: There is an irrefutable link between the amount of money that local authorities raise from a range of sources and the amount that they have to raise in council tax, because they have to bridge the gap, but, as the hon. Gentleman will know and as I shall explain in a moment, local government income is from a range of sources, which I shall set out, as it may be helpful.
	Council tax raises about £21 billion, which is equivalent to 25 per cent. of local revenue expenditure. Government grant accounts for about £48 billion and 53 per cent. of revenue expenditure. I urge those who decry that level of Government grant to remember that a smaller contribution from central Government means more from someone else. At the last election, the hon. Gentleman's party proposed to freeze grants to local government for two years—[Interruption.] The hon. Member for Meriden (Mrs. Spelman) says, "We didn't," but let me quote her the words of the then shadow Chancellor, because the policy was clear:
	"I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all these departmental budgets, including local government, will be 0 per cent."
	Nothing could be clearer than that—[Interruption.] The hon. Lady says that that was before the James review, but we know that the review proposed cuts of £1 billion in local government expenditure for which it had no way of accounting. It is important that the House knows that the Conservatives were claiming £900 million of savings from reduced costs as a result of inspection and the like but, when pressed, they were forced to rely on a study that concluded that low morale cost £400 million. Their sums simply do not add up.

Caroline Spelman: To set the record straight, the then shadow Chancellor, before the election, following the savings identified by the James review, gave a commitment to increase funding to local government.

David Miliband: I very much look forward to taking that matter forward. We have quotes from the right hon. Member for West Dorset (Mr. Letwin) and, although I know that he is something of a man of the past in the Conservative party because he is not running for the leadership, we shall certainly pursue the matter.
	Council tax raises about 25 per cent. of income, central grant raises 53 per cent. and the national non-domestic rate about £18 billion, linked to the retail prices index. Thanks to the new prudential capital finance regime that took effect on 1 April 2004, local authorities are, for the first time, free to borrow for capital projects without Government consent. Those are the main sources of local expenditure.

Graham Allen: That is all good knockabout political stuff,   but where the hon. Member for Meriden (Mrs. Spelman) was right was in saying that we should all be thinking about the future of local government finance. Does my right hon. Friend accept that in no other western democracy is local government in thrall to central Government as it is in the UK? Will he look into the constitutional settlement between local and national government, because that is the only long-term way in which local people can take control of their own affairs and have a say in raising money locally in the way they feel is appropriate?

David Miliband: My hon. Friend makes an important point and, as he will know, the balance of funding review addressed that matter directly, as shall I. It was generous of him to focus on the 28th minute of the contribution of the hon. Member for Meriden and I shall try to do so, too.

Vincent Cable: Will the Minister return to a point on which there is more consensus: the Gershon savings of £5.6 billion a year? How will we know when they have happened and, as a taster, can he tell us how much was saved in the first year of the programme?

David Miliband: I am pleased to say that I can. Our analysis of plans submitted by authorities suggests that councils are not just making real efforts but achieving real success. The efficiency gains achieved already and those expected by the end of the year add up to £1.9 billion. That is good news, and I think we can all agree on the importance of that.
	The property base of local taxation, through the council tax, provides an efficient and workable foundation for taxation.

John Butterfill: In response to the intervention about local government not being in thrall anywhere else in western Europe, may I cite the fact that local authorities in Germany and Austria get respectively 15 and 18 per cent. of the total national tax take, and they get it from central Government? They are almost entirely funded from the central Government, not from local people.

David Miliband: The hon. Gentleman makes a good point. Of course, there is a big difference between local taxes and assigned national taxes, and the degree of thrall differs according to those two measures. Before hon. Members become too focused on the idea that those in local government are lying inert on the floor underneath the weight of central Government, they should go to any town or city in the country, where they will see a lot of dynamism, with those in local government exploiting quite a lot of freedom in performing their roles. I am sure that every hon. Member can point not just to isolated examples, but to a real drive by those in local government to lead their communities, economically and socially—and in my part of the world, culturally as well.

Simon Hughes: Ahead of the Lyons announcement, as a matter of philosophy, does the hon. Gentleman personally as a new Cabinet Minister—and does his party—believe in giving more power to local councils? Do they believe that more of the money spent locally should be raised locally?

David Miliband: The balance of funding review concluded that there was a strong case for more money to be raised locally. In respect of devolution, I believe that it is a good principle that power should be exercised as close to the people as possible, and I tell the hon. Gentleman in all seriousness that that is not just about power for the town hall; it must be about moving power from the town hall to the citizens as well. In that sense, this is not just a devolution deal between local and central Government—it must engage people beyond the town hall. That is important.
	The property base of local taxation provides an efficient and workable foundation for taxation. For groups on low income, the council tax is, of course, reduced—for single people, by 25 per cent; for poor families, by council tax benefit, which is received by 4.9 million family units a year and is worth £13 a week on average, although we would all like take-up to be higher. Of course, there is a welcome boost for pensioners, pioneered by my right hon. Friend the Chancellor of the Exchequer.

Nick Hurd: rose—

David Miliband: Will the hon. Gentleman just let me make this point?
	The Government's help in the form of a £200 contribution to the cost of council tax goes to 6.2 million pensioner households, nearly twice as many as would be covered by the Opposition's proposal, which excludes many pensioners because they do not live with other over-65s. Less than one quarter of pensioners would get the £500 of which the Opposition boast. In fact, the majority would get less than the £200 that is delivered under our proposals.

Caroline Spelman: What about next year?

David Miliband: Tempted as I am to make Budget statements in advance of the Chancellor, it would probably be audacious for a new Cabinet Minister to do so.

Nick Hurd: I should like to bring the Minister back to the take-up of council tax benefits, which he skirted over. The unsettling fact is that about a third of pensioners who are eligible for council tax benefit do not take it up, apparently owing to the complexity of the process. What will the Government do about that, apart from just stating an aspiration that take-up will increase?

David Miliband: I agree that take-up is an issue. I will write to the hon. Gentleman, though, because he is somewhat mistaken about the number. My understanding is that the figure is actually 53 per cent., but I will check that for him. However, neither 53 per cent. nor 33 per cent. is anything to be proud of. Take-up is certainly an issue to be considered, but it is not just a matter of publicity, however important that is, and a range of other issues is associated with it. It is certainly something that my right hon. Friend the Secretary of State for Work and Pensions is considering, because it is a long-term issue.

Anne Main: The Minister compared the Government's £200 contribution with the £500 that the Conservatives would have delivered but ours was a year-on-year contribution, not a one-off, so I do not know how he can compare the figures.

David Miliband: I am sorry, but any of us can promise any amount of money if we do not have to say where it will be paid from. I can magic commitments out of the air, but, frankly, in the scheme of things, when the Conservative party proposes a £35 billion reduction in Government spending by 2011, for the hon. Lady to suggest that there is a sudden outburst of generosity in respect of pensioners strikes me as fanciful to say the least.

Caroline Spelman: I thank the Minister for allowing me to reply to that point. The Institute for Fiscal Studies confirmed that our proposal was fully costed and fully funded, and among the savings was the scrapping of the best value comprehensive performance system, which costs £1 billion a year.

David Miliband: I am sorry, but this £1 billion cost for inspection is completely erroneous. As I said to the hon. Lady, the figure is based on a local government information unit study that ascribed £400 million of savings to increased morale. I am happy to pursue the point, but I think that I should bring my remarks to a close. [Hon. Members: "Yes."] I am sorry that Conservative Members have not been able to enjoy the past 20 minutes, but there is more to come.
	The Government are determined to balance the commitments to spending on front-line services, a strong efficiency drive and a prudent council tax policy as part of a balanced package to support local government. The balance of funding review, which reported last July and included senior figures from central and local government, the academic world, business and professional bodies, found a strong case for shifting the balance towards more local funding. But that case depended on the feasibility and desirability of any measures to achieve it. It concluded that a variable local income tax might increase local accountability, but that a more complex funding system might be harder for taxpayers to understand, and there were potentially serious risks and disadvantages that would need to be considered in great detail, including the additional costs and burdens that the system would impose and the complexities of administration. That is notwithstanding the further point that, for dual-earner households, a local income tax presents, by any stretch of the imagination, a significant tax rise. Opposition Members must explain that.

David Howarth: Will the Minister give way?

David Miliband: I will not have a big go at the hon. Gentleman but let him speak for himself. The hon. Member for Brent, East (Sarah Teather) will no doubt cover this point in a moment.
	The balance of funding review reached consensus on a broad range of issues. It concluded that council tax had important advantages as a local tax and should be retained but reformed to help people on low incomes and to reduce the impact of revaluation. In the context of that, the House will be interested to compare the remarks of the hon. Member for Meriden today with her comment, as recently as 2 March 2005, that
	"a property-based tax must take account of changes in the value of the property".
	[Interruption.] The hon. Lady says that it is not true, but it is written here in Hansard

Eric Pickles: My hon. Friend did not say that.

David Miliband: I am sorry but I have the full quote here. If the hon. Gentleman will contain himself, he will hear that the hon. Lady said:
	"The answer to the question about revaluation is that, of course, a property-based tax must take account of changes in the value of the property."—[Official Report, 2 March 2005; Vol. 431, c. 983.]
	She said that. I hope that the hon. Gentleman will accept that the quotation is accurate.

Caroline Spelman: All I said from a sedentary position was that I had already covered that point in response to the intervention of the right hon. Member for Greenwich and Woolwich (Mr. Raynsford). The point was that the revaluation exercise is to tackle the disparities in property prices, but the fact is that the gap is narrowing. That takes away the need to act now and in the way that the Government intend.

David Miliband: The watching millions can draw their own conclusions from that.
	To follow up the work of the balance of funding review, we invited Sir Michael Lyons to undertake his inquiry into local government funding. We asked him to consider the detailed case for changes to the system of funding and make recommendations on any changes that are necessary and how to implement them.

Geoffrey Clifton-Brown: Will the Minister give way on that point?

David Miliband: I have been extremely generous in giving way, and I hope the hon. Gentleman will now allow me to finish my speech.
	In particular, we asked Sir Michael how best to reform and revalue council tax and to look at the case for supplementary revenue raising by local authorities and options for reforming business rates and other local taxes and charges. Since starting work, he has visited each of the English regions and Wales to take evidence from stakeholders. He has met groups and individuals with a wide range of interests, and key stakeholders have been encouraged to submit written evidence. I look forward to his report.
	I have a sneaking feeling that the minds of the drafters of both Opposition motions may be less on the finer points of the Lyons inquiry and more on their intense political rivalry for the vacant Cheadle seat. When the hon. Member for Meriden started talking about "Bash the rat"—[Interruption.] I am sorry but "splat the rat" is known as "Bash the rat" in the more refined parts of the north-east. However, when she started talking about "splat the rat", I thought she was talking about us. It turns out that we on this side are the drainpipe in this competition and the rat is sitting on the Liberal Democrat Bench. Be that as it may, the Government are fully focused on promoting serious engagement with the difficult choices raised by the pressure for more local spending in an acceptable way. It is to that end that I welcome this debate and look forward to its conclusions.

Sarah Teather: As the Minister of Communities and Local Government suggested, it is a great pleasure, in my debut on the Front Bench, to be defending our party's most popular policy from Conservative attack—[Laughter.] The Conservatives laugh; let them laugh.
	We have had an interesting debate so far, although it has turned up some of the worst and most anodyne of soundbites—goodness knows what "splat the rat" relates to. However, it has also shown clear philosophical differences between the parties, as well as a gaping hole in Conservative party policy. The Conservatives have nothing to say about the balance of funding crisis or the need to reform council tax, but of course the truth is that they do not want to do that. They have flip-flopped all over the place on revaluation. Their claim appears to be that house prices are converging across the country. What land are they living in? I assure them that house prices in my constituency have gone up a good deal faster than they have in neighbouring areas.

Eric Pickles: The hon. Lady is wrong on two material facts. First, there is not a question of convergence. However, the relationship between north and south is roughly what it was.

David Howarth: indicated dissent.

Eric Pickles: Yes, it is; the relationship is exactly what it was when the council tax was introduced 10 years ago. Secondly, we have voted against revaluation on every single occasion, but on every single occasion, the Liberal Democrats voted for it.

Sarah Teather: I understood that the Conservative party was advocating five-yearly rather than 10-yearly revaluations, so the hon. Gentleman is perhaps misleading us.

John Pugh: I have a Hansard quote from the hon. Member for Brentwood and Ongar (Mr. Pickles), who just said that we are wrong. On 7 January 2003, he said:
	"We support  . . . revaluation being made on a regular and predictable basis."—[Official Report, 7 January 2003; Vol. 397, c. 64–65.]

Sarah Teather: The Conservatives really do not know what they are doing, do they?

Andrew Turner: On a point of order, Mr. Speaker. Am I correct in thinking that the hon. Lady said that my hon. Friend was misleading us?

Mr. Speaker: I think that the hon. Lady meant to say "inadvertently misleading".

Sarah Teather: I absolutely meant that the hon. Gentleman was inadvertently misleading us Mr. Speaker.
	Now that the Conservatives oppose revaluation, it is clear that they are not attached to the council tax because they believe in the philosophy of a property tax. They have said that they oppose a wealth tax and want a local service tax. The hon. Member for Meriden (Mrs. Spelman) said that it costs the same amount to every person to empty the bins in every area. That shows her view of the role of local government. The nonsense that the Conservatives talk about wanting localism is underlined by that statement. It is the kind of thinking that spawned the poll tax, so the party has not moved on intellectually.
	There is real tension in the Conservative party because although some say that they want localism—some of the brighter Back Benchers advocate the return to localism and getting rid of the centralist state—the hon. Lady continues to argue for a local services tax and against giving any powers back to councils. She argues for a regressive tax system.

Caroline Spelman: I am grateful for the opportunity to reply to the hon. Lady's point, which is definitely misleading, and not inadvertently. I make it perfectly clear to her that in the balance of funding review—

Mr. Speaker: Order. We had best stop here. No hon. Member would be misleading in the House and certainly not the hon. Member for Brent, East. I hope that the hon. Member for Meriden (Mrs. Spelman) will withdraw that remark.

Caroline Spelman: Of course I withdraw any remarks that might cause offence. A proper reading of Hansard tomorrow will reveal the words that I actually said in my speech, not the words that are being put in my mouth.

Sarah Teather: I am no clearer, I am afraid.
	At least the Tories are honest enough to acknowledge that the council tax is a poor proxy for a wealth tax, whereas the Government claim to be interested in progressive taxation, but fail to tackle the main problem with council tax by grasping the nettle that it is fundamentally unfair. I will be interested to find out whether they finally grasp that nettle when the Lyons review reports, or whether they will institute yet another review.
	We have been arguing for the abolition of the council tax and its replacement with a local income tax since the Conservatives introduced it.

Graham Stuart: In light of the Liberal Democrats' opposition to the council tax, will the hon. Lady explain why members of her party voted again and again for a revaluation that will hit people hard and make them pay more. Why did they support the Government in doing that?

Sarah Teather: We did not. End of story.
	We have argued for the local income tax because it is fair—

David Davies: Surely the hon. Lady is aware that the Liberal Democrats in Wales most certainly voted not only for revaluation, but for the change in formula that took money from rural areas and put it into the south Wales valleys, where Labour authorities had been unable to keep their books in order for many years.

Sarah Teather: A revaluation is irrelevant if we have a local income tax. If we scrap the council tax, there is no need for any revaluation. It is nonsense to suggest that we are in favour of revaluation. We are in favour of getting rid of the council tax.

David Mundell: Will the hon. Lady give way?

Sarah Teather: In a minute.
	We have argued for a local income tax because it is fair and simple and has been proven to work in many other countries and here. Fundamentally, it will allow us to shift the balance of tax raising from national income back to local income. That is what localism is about. If we are serious about localism, we must give councils the power and freedom to raise money and spend money.

Kevan Jones: I am listening to what the hon. Lady says about local income tax. Does she stand by what she said in the Evening Standard on 29 June:
	"A fair local income tax would be simple and cheap to collect and wouldn't leave people impoverished."
	How could it not leave three nurses who live together in a house in the city of Durham impoverished if they have to pay more council tax?

Sarah Teather: A student bursary is not taxable.

Adrian Sanders: One fundamental problem with any system of local government that is dependent on a central Government formula is that it will relate to the local tax base. A council tax system will always be unfair to an area of above average house prices and below average incomes. Our policy tries to address that.

Sarah Teather: My hon. Friend makes an excellent point, and the situation would be made worse following revaluation.

Eric Pickles: I give the hon. Lady the opportunity to withdraw her remarks. Is Hansard in 2003 at columns 126, 976 and 339 wrong when it shows Liberal Democrat MPs voting for revaluation?

Sarah Teather: That relates to a vote on Third Reading. We did not vote for revaluation. [Interruption.] Those are endless numbers and I cannot answer the detail.
	The point of introducing a local income tax is that it allows us to shift the burden so that we move from raising all the money through national income tax to raising it through local income tax. We cannot do that with a property tax alone. We certainly cannot do it with an unfair council tax.

Several hon. Members: rose—

Sarah Teather: I need to make progress. I have been talking for some time—

Nick Raynsford: Will the hon. Lady give way?

Sarah Teather: I shall give way to the right hon. Gentleman shortly.
	Council tax is fundamentally unfair because the poorest 20 per cent. pay far more of their income to it than the richest 20 per cent. That is much more the case for pensioners, who pay six times as much of their income as the richest 20 per cent. That explains the revolt against council tax.
	As other hon. Members said, benefit take-up is poor. It is an intimidating process. Two thirds of pensioners fail to claim the benefit that they are owed. We need to end the nonsense which suggests that council tax is easy to collect because property does not move. Some £600 million-worth of council tax went unpaid last year. We now have the spectre of an 85-year-old lady being imprisoned for not paying her council tax, which she says she is unable to pay.

Nick Raynsford: Will the hon. Lady tell the House whether her party's policy for a local income tax remains based on the premise that it would be collected only through the pay-as-you-earn system? If that is the case, how is it fair that those people who are outside the PAYE system, including those people living on investment income and dividends, who are among the wealthiest in the country, would be exempt from making any specific contribution towards local taxes?

Sarah Teather: The money would be collected using the same process that we use to collect income tax at the moment. It would not be any different.
	I shall deal with some of the misinformation circulated by the Conservatives, who do not understand the impact of council tax on ordinary families, because they do not understand how much an ordinary family earns. The leaflets circulated in Cheadle claim that in some areas of Bramhall people would pay much more in local income tax, but, in fact, that would only be possible if they earned well over £80,000 a year. I would be interested to know the workings behind that calculation. I am sure that people on the North Park Road estate would be interested to know that the hon. Member for Meriden believes that the average household income in that area is over £80,000.

Caroline Spelman: rose—

Sarah Teather: I am happy to give way to the hon. Lady so that she can explain how she arrived at those figures.

Caroline Spelman: The Liberal Democrats' own "Axe the Tax" website gave a figure between £30,000 and £40,000. The hon. Member for Twickenham (Dr. Cable) said that the proposal would bite on a dual income in the middle of that range, so would the hon. Lady explain why the situation has changed?

Sarah Teather: The figures in the Conservative leaflets in Cheadle claim that people would supposedly pay much more in local income tax, but I must point out that that is only possible on an income of more than £80,000. So that is a ridiculous claim.
	The average household income is only about £23,000 a year, so figures given by the Conservative spokesmen completely misunderstand the earnings of ordinary families. Under a local income tax, about half the population would be better off, a quarter would be about the same, and a quarter would pay more. We have been upfront about that, and the hon. Member for Meriden, the Minister and I would all pay more. That is perfectly fair. Pensioners in Cheadle, however, would do extremely well. Only 4 per cent. of pensioners nationally would pay more. Many pensioners would do considerably better than they do at the moment, and about 6 million of them would not pay anything at all.

Chris Bryant: It is fascinating to watch the spat between the Liberal Democrat and Conservative Front Benchers. The hon. Lady made a strong point about wanting to return to localism in local government finance. However, is there not a difficulty, given that for many decades a fundamental principle of local government finance has been redistribution from the richer parts of the country to poorer areas? Is that not equally important, and is there not a danger that in her ideological obsession with localism she may lose support for poorer areas of the country?

Sarah Teather: We need to raise a much greater proportion locally. About 30 per cent. of local authority income is raised locally, and about 70 per cent. comes from a Government grant. We should reverse that 70:30 split. There would still be an equalisation grant, but far money would be raised locally through a local income tax.
	A local income tax would be much cheaper to collect—around £340 million a year. It would end the bureaucracy of 352 separate billing authorities, and everything would be done through the Inland Revenue. I shall deal with some of the other nonsense in the Tory motion. The Chartered Institute of Public Finance and Accountancy looked at compliance costs on businesses after it gave evidence to the Government's balance of funding review, and said that it was quite possible to use the coding system, so no extra administrative burden would be imposed on employers. As for local income tax undermining the incentive to work, I suggest that the Conservatives tell that to people who are paying a 20 per cent. marginal tax rate as they struggle to return to work, who find that their council tax benefit is removed.
	The Conservatives do not have an answer to the council tax or to the balance of funding crisis. They have opposed every reform that has been proposed, and do not have a clue about returning tax-raising powers to local authorities. That is hardly a surprise, because under Thatcher we experienced capping, the abolition of the Greater London Council and centralised business rates. The Government are in no better position. They have already briefed their favourite journalists at The Times to the effect that they may not do anything at all about local government finance. They have an historic opportunity to do away with an unfair and unpopular tax that has been hanging around their neck since they replaced the Conservative Government. They have an opportunity to shake up local government finance radically, to localise business rates and give them back to local authorities, to get rid of ring fencing and passporting, and to introduce a tax system that would allow us to raise far more of the money locally. Will they do it? I doubt it, because new localism is meaningless. I await a further review.

Several hon. Members: rose—

Mr. Deputy Speaker: Order. I should remind the House that a 10-minute limit has been placed by Mr. Speaker on Back-Bench speeches, which operates from now on.

Alan Whitehead: Words to describe the contribution from the Conservative Front-Bench almost fail me. I had hoped that after the exigencies of the election, we might have a rather more reasoned and thoughtful debate, as my right hon. Friend the Minister said, about the future of local government taxation and   where it goes. The hon. Member for Meriden (Mrs.   Spelman) claimed that we did not need the revaluation, which the Conservatives themselves built into the council tax when they introduced it. Revaluation was seen as a logical part of the process because in one year, apparently, house prices were converging, whereas the idea of building a revaluation into the council tax takes account of the difference in prices over the period between one revaluation and another, so the revaluation relates council tax to the real price of houses, rather than to the fictitious base that successive failures to revalue would eventually create.
	The hon. Lady contributed a series of non-suggestions for change—for example, by talking about how pensioners would get a rebate on council tax, without stating how that rebate would be funded. As she said, it would have to come from central Government funds, so the proportion of money coming from the centre would be greater, while the proportion from local funds would be smaller.
	The third point in the Conservatives' case was that council tax-raising by the Government is a form of stealth tax that takes ever-increasing amounts of money away from local people.

Anne Main: Is the hon. Gentleman content that 50 per cent. of the increase in pension since 1997 is swallowed up by council tax?

Alan Whitehead: No, certainly not. If the hon. Lady would care to listen, my point is that you cannot claim that you are trying to cut expenditure centrally and at the same time fund the rebates that you propose as part of your policy by putting in more money from central Government. The two do not—

Mr. Deputy Speaker: Order. I remind the hon. Gentleman, who has been here for a few years, that he should not use "you" to refer to the hon. Lady.

Alan Whitehead: I apologise, Mr. Deputy Speaker. I shall attempt to be more accurate in my remarks.
	On the extent to which the council tax is supposedly a stealth tax, the hon. Member for Meriden should refer to the proportion of funding raised by local government as a proportion of total revenue spending in local government year on year over the past seven or eight years, and see what percentage comes from central Government, what percentage comes local government and what percentage comes from business rates. Had her claim been correct, one would expect the proportion raised from local taxes—the money that the Chancellor is allegedly trying to get local people to raise as a form of stealth tax—to rise and the amount coming from central Government to fall. The hon. Lady would find that the opposite is the truth. What is true—perhaps this is a reflection on the future of council tax—is that the proportion of the tax provided by the business rate has fallen substantially in terms of total local government revenue.

Graham Allen: I hope that my hon. Friend will be wary of falling into the trap of not recognising that local tax-raising and national tax-raising is taxation raised locally. The moneys come from individuals, local people. The question is how much is retained by the centre and what is done with the revenue. Does my hon. Friend accept that we can never separate local government finance from local government powers? Perhaps Liberal Members have lost that part of the theory. They have come up with a view about local income tax, which has some intellectual coherence, but that seems not to walk alongside the differentiation of local power and national power. There must be a constitutional and democratic settlement to make things work.

Mr. Deputy Speaker: Order. The hon. Member for Nottingham, North (Mr. Allen) knows that he must not make a speech in an intervention.

Alan Whitehead: My hon. Friend makes a valid point. If it is accepted that more power should be returned to local level, that goes along with the idea that funding for local decisions should be made locally to a greater extent. Decisions on that funding, and the extent of that funding, must be made locally. There are no proposals from Conservatives to raise the amount of money that is raised locally through council tax. Indeed, the opposite is the case, given what they say about how their various giveaways should be funded. They wish to see the proportion of money that comes from the centre increased. At the same time, they say, having examined the charts erroneously, that the sums that the Government are making local people pay through local tax are increasing.
	The amount raised by the business rate has fallen. If there is a review and an outcome, the buoyancy of the tax take across the board must be considered as a whole. The hon. Member for Meriden failed to set out the proposal at the centre of her party's proposals when going into the general election. It was proposed to freeze the amount of money going into local government. The hon. Lady shook her head in response to the quote from the shadow Chancellor on 16 February 2004, but that was—

Caroline Spelman: If the hon. Gentleman reads Hansard tomorrow he will see that I stated clearly for the record that our former shadow Chancellor had clarified before the election that local government funding would be increased. The proportionate share between central Government and local government varies by local authority. The global picture disguises the way in which Conservative authorities have been discriminated against.

Alan Whitehead: The hon. Lady is right that the shadow Chancellor clarified the position shortly before the election. Indeed, he did so in February 2005. In a statement posted on the Conservative website entitled "Better Public Services, Better Value", he said:
	"Last February, we set out our medium term expenditure strategy. The heart of that strategy is a path for public spending that is affordable . . . in this document we set out how we will achieve that affordable spending."
	On page 2, there is a table setting out spending in 2005–08, which was allocated to priority and non-priority areas. Right hon. and hon. Members will be shocked to know that local government expenditure was considered as a non-priority area. They will also be shocked to know that other grants to local government in a devolved Administration in that non-priority group were listed to increase over a three-year period by only 1 per cent. That is equivalent to a freeze in the first two years and an increase of 2 per cent. in the third year. The policy that the hon. Lady has said is not policy, and which was amended between 2004–05, was endorsed by the shadow Chancellor in the document of 2005. That illustrates the bankruptcy of the Conservative proposals on local government.
	We need to consider some aspects of council tax, including, as the Liberal Democrat amendment suggests, the way in which local government taxation is geared. The gearing effect shows that decisions on local government taxation automatically inflate in terms of the council tax-raising decision and the budget-making decision that precedes it. However, the Liberal Democrats have failed to see the central point. Indeed, the hon. Lady's predecessor, who was in the Siberian power station position of defending Liberal Democrat local income tax proposals, said that under his policy he would have to put £1.7 billion into the pot to keep local income tax rises at 3.5 per cent. for the first year. He was, I accept, very honest when he said that that amount had gone up from £1.7 billion to £2.4 billion—again, money from central Government resources. Local income tax completely fails to deal with the gearing problem in local government taxation.

Sarah Teather: It is a two-stage solution, as it is not possible to do everything in one go. We need to get the system in place and let it bed down, and then shift from national to local taxation. Without a coherent system, it is not possible to do that.

Alan Whitehead: I think the hon. Lady is saying that over a period of time the local government settlement becomes even more highly geared—that is, more money comes from the centre and less from local government, and eventually the position switches to a greater amount of money coming from local government than from the centre, in which case local income tax rises very substantially. The whole basis of the local income tax proposals—as currently presented, for all I know, in the Cheadle by-election—is that rises are kept down to about 3.5 per cent. a year, which can only be done by smoke and mirrors.

David Howarth: rose—

Alan Whitehead: I only had 10 minutes, and I am afraid that I cannot give way any more.
	In other words, a lot more money will have to be put in from the centre to keep the whole rickety show on the road. The truth is that, as the balance of funding review said, a local tax derived from property that is difficult to evade, relatively straightforward and cheap and simple to collect is probably the best way forward for local taxation. However, it requires several changes that reflect how taxation can be affordable, how the gearing process works, how the business community relates to local government in terms of paying for it, and how the palette of taxes might be broadened in order to make that whole burden bearable. The balance of funding—

Mr. Deputy Speaker: Order.

John Butterfill: Since I have been in this House, we have moved from the rating system, through the poll tax, and on to the council tax. People are now saying that none of those worked and we need another kind of tax. The real problem with the council tax, which was welcomed when it was first introduced, is the increased burdens that the Government have placed on local authorities without providing the funding to ensure that there is not a hugely increased charge to council tax payers.

Alison Seabeck: Will the hon. Gentleman give way?

John Butterfill: The hon. Lady must let me say a couple of sentences before she tries to intervene, but I will give way in a moment.
	The council tax has become unpopular simply because of the large increase in costs. It is therefore not unreasonable for thoughtful people such as the Liberal Democrats to say, "Ah, but wouldn't it be more reasonable if we had a local income tax, because that would be fairer and more attuned to people's ability to pay?" I believe that they are well intentioned, but misguided.
	First, who would pay it? According to the Library, where I got some statistics today, there are approximately 38.3 million people of working age in this country, of whom 12.2 million do not pay income tax. On the other hand, 5 million pensioners pay income tax. Students, who do not currently pay council tax, would pay local income tax if they earned money to sustain themselves in their time at university. However, if we had local income tax in my constituency, the hundreds of foreigners who own holiday homes there would not contribute because they do not pay tax in this country. Probably 1 million foreigners, who would not pay local income tax, own property in London. Yet they use services, often placing a huge burden on the services that local authorities provide.

Sarah Teather: Such people would pay business rates on their properties if nobody lived there.

John Butterfill: The hon. Lady is wrong. People who have holiday homes do not pay business rates.

Sarah Teather: Under our proposed system, they would pay business rates on the properties if they were not resident in this country.

John Butterfill: So the Liberal Democrats now have a policy whereby people who have second homes would pay business rates on them?

Sarah Teather: Yes.

John Butterfill: Well, at least we have one little extra gem to add to our understanding of Liberal Democrat proposals.
	Local income tax would have a narrow tax base. Some boroughs would have few income tax payers. Either they would become increasingly dependent on central Government funding or the few income tax payers left in some poor boroughs would pay massive amounts of local income tax. They would bear a swingeing burden. It has already been said that hard- working husbands and wives, with heavy responsibilities, would be worse off. I do not know whether the Liberal Democrats propose to do something to help them.
	The real problem with local income tax is that the administration is so difficult. First, unlike in some other countries, people in this country do not pay income tax where they live but where their employers are based. Local authorities that wanted to collect local income tax would have to find out where residents' employers were based. They would have to apply through the employers to the tax office to find out those residents' incomes. It is no good the Liberal Democrats claiming that it can be done through the tax code; it cannot. The tax code gives information only about a person's allowances, not a person's income. Unless the local authority knew the income of each tax-paying individual in the local district, it could not calculate the product of a local income tax. It would be flying in the dark. Officials at the town hall would need to know the income of every resident in the area.

David Howarth: The fallacy in the hon. Gentleman's point is the assumption that the local authority would need to know anything about taxpayers' affairs. As in other countries, the system would be prepared through the national tax authorities. All they have to know is where people live. They already know that; otherwise, how would we receive our tax notices?

John Butterfill: There we are. We revert to the point that the tax would be nationally based and subsequently redistributed. It would be a central tax. The hon. Gentleman is right that that is exactly what happens in Germany, where a national tax is distributed to local authorities. That gets rid of the independence of the local authority. Local authorities would need to know the income of people who lived locally; otherwise they could not set a rate. A huge administrative burden would be placed on local tax offices.
	The biggest problem with local income tax, however, is that it creates ghettoes of the rich and poor. I shall explain how that works. If we take the two London boroughs of Lambeth and Wandsworth, we can already see the effect that has been created just through the council tax. Relatively poor Lambeth has relatively high rates of local taxation and substantial Government subvention, whereas relatively prosperous Wandsworth has become more prosperous because it has a very low rate of council tax.
	If that is true in the case of council tax, how much more true would it be if a local income tax were introduced, and people were to have their money directly plundered by the Liberal Democrats? The rich would vote with their feet. They would move from areas of high local income tax into areas of low local income tax. They would be able to afford to do so, but the poor would be trapped in areas of high local income tax as they would not be able to afford to move.
	The only way in which that problem could be overcome—I am anticipating what the hon. Member for Kingston and Surbiton (Mr. Davey) is going to say about this—would be to have even larger Government grants to the areas with high rates of local income tax. That would create even more dependency, as well as taking away from the poor areas the very autonomy that the Liberal Democrats profess to want for them. This is a lunatic system that could only have been developed by the Liberal Democrats. Only they could be so silly as to propose something like this. In the ghettoes that they would create, there would be huge numbers of people who would vote for better and better local services in the certain knowledge that they would not have to pay for them, and that somebody else would.

Edward Davey: I am sure the hon. Gentleman has studied the way in which local income tax works in Sweden, Finland, Norway, Denmark, Switzerland, Japan and many states in the US, where there is more decentralisation and more money raised locally. None of those systems has any of the features that he has just mentioned. Would he like to study the systems in those countries, because that is where they are working in practice?

John Butterfill: I am grateful to the hon. Gentleman for raising that point; I was just coming to it myself. I have read the study produced by Cardiff university on the very paragons that he has just mentioned. It criticises local income tax in Scandinavia for having the following disadvantages: its base is limited by options decided at a higher level; it is not very transparent, in that local tax policy and national tax policy are difficult to separate, as I am sure the hon. Gentleman would happily confirm; and the joint nature of the tax means that central Government are involved in setting the base and the rate of tax,
	"thus lessening the autonomy of the local authority".
	And, as I pointed out earlier, the system in Germany involves a percentage of central income tax being handed out. The same applies in Austria. Moreover, Scandinavia, about which the hon. Gentleman is so enthusiastic, does not have a graduated system; it has a proportional system that is extremely regressive. Is that really what he wants to introduce in the United Kingdom? Perhaps it is. If so, we are glad that we are being told that that is what the Liberal Democrats want.
	We could, however, refine the existing system in the ways that my hon. Friend the Member for Meriden (Mrs. Spelman) has outlined. I would go a little further. One of the inequities of the present council tax system is that it does not take sufficient account of the composition of a household. It makes some recognition of it, but there are many households, in my constituency and everywhere else, with a large number of people of working age who do not effectively make an adequate contribution to local taxation. Yet there are others with a single person or a pensioner couple that are effectively paying more than their fair share for the services that are provided. If we are to reform the council tax system, I suggest that we adjust the council tax more adequately to reflect the composition of households. That would not be difficult; the necessary information is available from the census data or through voter registration details. It could therefore easily be done, and it would create a much fairer system than the complete dog's breakfast proposed by the Liberal Democrats.

Nick Raynsford: I followed with interest the speech of the hon. Member for Bournemouth, West (Sir John Butterfill), which started very well. It was particularly good when he was demolishing the Liberal Democrat case for a local income tax, which he did with considerable skill and accuracy. Unfortunately, he spoiled the good effect by veering in the last minute of his speech into a return to the poll tax. It is one of the extraordinary features of today's Conservative party that it remains absolutely wedded to the belief that if it could get itself back to where it was in the 1980s, all would be well. Political parties that are obsessed with the past rarely command the confidence of the public. Thinking that it can find a solution to local government finance by going back to the kind of principles that generated the poll tax seems to be a delusion that is sadly typical of today's Conservative party.

John Butterfill: I fear that the right hon. Gentleman does me an injustice. I was opposed to the poll tax when it was introduced, and I proposed an adjusted rating assessment, because the big attraction of the rating assessment, and the council tax, is that it is collected simply from the head of household. All that I was suggesting is that council tax ought to take household occupation into account more than at present.

Nick Raynsford: I hear what the hon. Gentleman says, and I will not pursue that, as there are points of principle that I do wish to pursue. Any attempt to move back towards a flat rate tax related to the numbers of people living in a household would be a profound mistake, as the country rightly and overwhelmingly rejected the whole ethos of the poll tax that characterised the Conservative party in the 1980s and early 1990s.
	One of the curious features of today's debate is the extent to which the two Opposition parties have been vying with each other—something on which other contributors have commented. It is strange that they should attach more importance to the short-term interests of the Cheadle by-election than to the long-term interests of developing a credible system of local government finance for this country, which is what we need. Let me consider some of the serious weaknesses in both their positions before concluding with a few thoughts about what should guide the way forward.
	The Conservatives have been advancing the extraordinary proposition that one can have a system of taxation based on property values without the need forrevaluation. The hon. Member for Meriden (Mrs.Spelman) recognised, I think, that that is completely untenable. She then proceeded to say that they were not totally opposed to revaluation, although the motion in her name and that of the Leader of the Opposition talks about cancelling plans for a council tax revaluation, which indicates pretty clearly that they are opposed to revaluation. She acknowledged that there was a need to take some account of values, but advanced the preposterous suggestion that because of some degree of convergence between property values in different parts of the country, there would currently be no need for a revaluation.

Caroline Spelman: I explained that, according to the Halifax building society, there is a clear convergence. Given the argument that the right hon. Gentleman is promoting, however, how does he explain the situation that pertains in Northern Ireland, which still has the rates system but has values based on 1975? That does not seem to present a problem in Northern Ireland.

Nick Raynsford: It is completely untenable, for reasons that I shall outline, to have a values system based on historic values without any revaluation. Let me tell the hon. Lady why.
	First, there is the nonsense of new properties being built where a notional value must be imputed as to what that property might have been worth 15 years ago. That is difficult enough if one is building a property in a developed area, but in an area which was previously entirely undeveloped, it is a completely ludicrous process. Secondly, when properties change hands and new values are applied, unfairness will inevitably be created. Two identical properties next to each other will have different valuations, purely as a result of a change of ownership in the intervening period, which is absolutely intellectually incoherent. Thirdly, the whole system is increasingly out of date, because it is based on values created 15 years ago. For all those reasons, it is intellectually and economically illiterate to suggest that one can have a system of council tax without the need for periodic revaluation. That is why we introduced arrangements for a regular 10-yearly revaluation. The Conservatives made fun of the Liberal Democrats for voting in favour of revaluation during the Committee stage of the Bill that became the Local Government Act 2003. The Liberal Democrats said that they did not vote for it on Third Reading. They do not seem to know where they stand.

Edward Davey: It is nice to see the right hon. Gentleman on the Back Benches, although we enjoyed his performances on the Front Bench.
	There was not a single vote on revaluation in Committee. The only amendment was tabled by the Conservative spokesman, the hon. Member for Cotswold (Mr. Clifton-Brown), who proposed five-yearly revaluations. There was no vote on revaluation on the Floor of the House. The only votes in the House took place on Second and Third Reading.
	As the right hon. Gentleman knows, there was much in the Bill for which we had campaigned for many years. We did not support revaluation, but we supported many good things such as prudential capital borrowing.

Mr. Deputy Speaker: Order. That intervention was far too long.

Nick Raynsford: The truth of the matter is that both Opposition parties are up a gum tree. One argues against revaluation now, but in Committee argued for five-yearly revaluations; the other adopted the view in Committee that revaluation was sensible, but now, because it is embarrassed about that, says that on Third Reading it did not vote for it.
	This is nonsense, and the motive behind it is the revealing factor. Both parties are positioning themselves in the short term so that they can attack and criticise the revaluation when it happens without being in any way to blame. That is the position of the politically—let me choose my words carefully—the politically unprincipled, who simply wish to attack and criticise without having a credible alternative to offer.

Eric Pickles: Speaking of the politically unprincipled, one of the things that have consoled us since the right hon. Gentleman's removal to the Back Benches is the number of articles that he has been writing on local government finance. Next to those articles have appeared news items from the Government suggesting that they are going wobbly on revaluation, rebanding and the whole process of local government finance. Are they being opportunist?

Nick Raynsford: I am delighted that the hon. Gentleman is reading my articles in the "Municipal Journal" and other organs. I am sure that he agrees with much of what he reads, because he has some experience of local government. Despite his present difficulty, caused by the position that his party is temporarily adopting for expedient short-term reasons, I think he will understand that Labour is the party that is currently pursuing a credible policy to try and create a long-term, viable system of local government finance.
	Let us now consider the Liberal Democrats' local income tax. Carried away by its vacuous slogan "Axe the tax", the party came to believe that this was the panacea and the miracle for them, but I am afraid that the rhetoric concealed all the defects of the local income tax. It is administratively complex, as the hon. Member for Bournemouth, West pointed out.

David Howarth: Will the right hon. Gentleman give way?

Nick Raynsford: No. My time is limited, and I have already given way to a member of the hon. Gentleman's party.
	The local income tax system would be inherently complex, with 400 authorities setting different rates. It becomes even more complex when we take account of the fact that unlike properties people move, because that means that there must be an arrangement for apportionment between areas. There would be huge additional pressures on employers, who would have to cope with the new coding arrangements. All that leaves considerable scope for evasion. The council tax is relatively easy to collect, and is difficult to avoid.
	The second problem with the local income tax is its unpredictability. That does not apply to the council tax. Local authorities could find that following the closure of an important factory, there was a dramatic fall in their revenue in the short term and no means of covering it. That is clearly a serious weakness.
	Thirdly, the local income tax is inherently unfair. If the Liberal Democrat proposals exempt those who do not contribute through the PAYE system, they are essentially exempting several hundred thousand of the richest people in the country, who are living on investment income and dividends, from making any contribution to local taxation. That is a scandal. Coming from a party that talks of fairness, it is one of the most ridiculous and absurd propositions that could be advanced.
	So the positions adopted by the Liberal Democrats and by the Conservatives are untenable. By way of contrast, the Government have rightly set up the Lyons inquiry, entrusting this work to Sir Michael Lyons, who is one of the foremost experts in the country. He is widely respected and is giving careful and thorough attention to the various issues. I am confident that he will produce a credible package of proposals, in line with the brief that he was given, as outlined by my right hon. Friend the Minister of Communities and Local Government. It is important that we await Sir Michael's findings before jumping to conclusions or advocating a particular course of action. [Interruption.] The hon. Member for Meriden is nodding; I counsel her to await Sir Michael's report and recommendations before jumping to any conclusions about revaluation. She will recognise that in a taxation system based on values, there will be a need for regular revaluations. I am afraid that the motion tabled in her name would have to be withdrawn or amended in the light of those recommendations.
	Sir Michael's work and the preceding work of the balance of funding review, which I am proud to be associated with, give us an historic opportunity to establish a long-term framework for local government finance that provides greater certainty and greater devolution to local authorities—so that they can take decisions and raise money themselves—but which also recognises the importance of an equalisation framework in ensuring no undue disparities between areas, and gives incentives for high performance and the delivery of high-quality services. That should be our aim and objective—local government empowered to serve communities in the most effective way, with a sustainable long-term finance system that is not the subject of short-term political squabbling among parties. I hope that Sir Michael will be allowed the freedom to produce his proposals, and that the Government will then introduce sensible proposals for reform, based on his propositions.

Andrew Turner: It is a pleasure to follow the right hon. Member for Greenwich and Woolwich (Mr. Raynsford), to whom I shall refer later on, if I may. I do not usually begin a speech by disagreeing with my own Front Benchers, and I do not   intend to do so today. However, I should point out   to my hon. Friend the Member for Meriden (Mrs. Spelman)—she is no longer in her place—who said that 76 per cent. of people blame the national Government for the level of local taxation, that although that is doubtless true nationally, on the Isle of Wight it is not. There, it is the Liberal Democrats who are blamed for the level of local taxation. The people of the Isle of Wight understand that if one spends more, one has to tax more. The Liberal Democrats do not seem to have understood that point in proposing their panacea of local income tax as an alternative to council tax.
	The Liberal Democrats do not seem to understand that shifting the taxation burden from a ratio of 30:70 to 70:30, as the hon. Member for Brent, East (Sarah Teather) suggested—she is also no longer in her place—would place an additional burden on the taxpayer. Such a proposal would be particularly burdensome in areas of low income such as my constituency, which has one of the lowest average income levels in the country and a very small number of higher-rate taxpayers. In other words, it has very few people who could afford to pay the level of tax that translating from the Isle of Wight's council tax to a local income tax would involve. As a result, the rate of tax would have to be pushed up. Nothing that I have heard so far from the Liberal Democrats during this debate has explained how they intend to help people in areas of relatively low income.

Kevan Jones: Does the hon. Gentleman agree that those of his constituents and mine who are on average earnings would pay more under a local income tax scheme? During the general election, the Liberal Democrats' website verified that two average earners in my constituency—a policeman and a nurse, let us say—would pay more. Alas, that evidence has been removed from the website, as it became an embarrassment to the party.

David Howarth: rose—

Andrew Turner: The hon. Gentleman is, of course, absolutely right that they would have to pay more: the lower the average income in the constituency, the higher the rate at which local income tax would have to be levied. I have to say that I did not spend much time during the general election looking at the Liberal Democrat website. I had much better things to do, but perhaps we are about to hear an explanation now.

David Howarth: It is no part of the Liberal Democrat proposals that we remove all equalisation between local authorities. We believe that the amount of equalisation is currently greater than is necessary to overcome the disparities between different councils. Unlike the hon. Member for Brentwood and Ongar (Mr. Pickles), I refer to different councils rather than overall regions.

Andrew Turner: I am grateful to the hon. Gentleman for making that clear. We are drawing out some interesting information from the Liberal Democrats. First, we had business rates for second home owners; now we have the idea that some local authorities do not need equalisation. Perhaps the Liberals would place on their website a list of the local authorities that do not need any equalisation. It would be interesting to voters in those councils to know that they are being targeted by the Liberal Democrats to make a bigger contribution to local tax than before.
	The problem with local tax is that the more money is spent, the more has to be raised. That is a fundamental fact that the Liberal Democrats will not accept. They will not accept that if a council spends more or wastes money, more has to be taken from the taxpayer. That is at the root of their troubles. That is why my local authority had to raise local taxation over the last four years by almost 50 per cent. I repeat that the Liberal Democrats raised taxes in the Isle of Wight by nearly 50 per cent.—something that even the Chancellor of the Exchequer has not achieved. He managed to achieve a 60 per cent. increase over eight years, but the Liberal Democrats achieved a 50 per cent. increase over four years.
	You will not be surprised, Mr. Deputy Speaker, to know that the Liberal Democrats were roundly rejected in the county council elections, which coincided this year with the general election. Where they, along with their independent allies, had formerly had a majority of seats, they were reduced to five seats out of 48. That is because the people of the Isle of Wight understand that if more is spent and more is wasted, taxation will be greater and it will be local people who have to pay the tax.
	By gosh, the Liberal Democrats did waste more. Let us look at how they administered the fire service on the Isle of Wight. It was described as "wholly ineffective" by the Audit Commission, which also pointed out that ideas for change were simply "not taken seriously". Because of the incompetence with which the Liberal Democrats administered the service, we were in danger of losing not only our fire control room, but entire control over the fire service from the island to the mainland.
	On highways, the Liberal Democrats were criticised by an Audit Commission report three years ago not only for having some of the worst roads in the country, but for not spending the amount of money set aside to improve the roads.
	On schools, we found, in the words of the Liberal Democrat portfolio holder for education, that standards were "too low" and "County Hall leadership wanting". Those were her words, so what was the Liberal Democrat solution? It was to spend £500,000 on a report about how to improve standards in schools. However, that report came up with nothing about improving standards, only with a reorganisation. It produced nothing about standards; it was all about structures—precisely the sort of thing that the Government criticise. It came up with a £70 million reorganisation with no idea of where that money would come from. It is not surprising that the Liberal Democrats went into the election somewhat lacking in the confidence of my constituents on the Isle of Wight.
	The crowning glory of the Liberal Democrat election campaign was their proposal for a tourist tax. You will be aware, Mr. Deputy Speaker, as are many hon. Members who visit my constituency, that the Isle of Wight is a glittering jewel in the tourist industry, which serves many people from all over the country very well. It is a very popular place to visit, but three months before the local election, the Liberal Democrats dreamt up the idea of a tourist tax. They disguised it, of course, as Liberal Democrats often do, and called it a visiting vehicle tax. Whether people arrive by ferry or by air, most use a motor car to get around the island—

Kevan Jones: Have we not had an announcement today of a new tourist tax that would affect the Isle of Wight and many of the hon. Gentleman's constituents, because the Liberal Democrats have announced that they would impose business rates on holiday homes?

Andrew Turner: Indeed, but I am not sure of the consequences. It would take more research than I could expect the Library to do in a few minutes.
	The proposal was one of the most un-thought-through of even a Liberal Democrat manifesto, because the consequence of a tourist tax is to drive tourists away.

Eric Pickles: Is my hon. Friend aware that that is not the only tourist tax that the Liberal Democrats suggest? They are also suggesting a tax on hotel accommodation.

Andrew Turner: I assume that the Liberal Democrats want everyone who comes to the Isle of Wight to walk there on water and then live in a tent. When they calculated the effect of their tourist tax, they did not allow anything for collection. Eventually, they were forced to claim that the tax would be only about £1 a tourist. How much would it cost to collect £1 from every tourist, but not from those who live on the Isle of Wight? I would imagine that it would cost more than £1 to collect that, so the poor benighted taxpayers of the Isle of Wight, had they been foolish enough—thankfully, they were not—to re-elect the Liberal Democrats to county hall, would have paid more to collect that tax than it would have raised.
	The record of the Liberal Democrats on the Isle of Wight speaks for itself and it is reflected in Liberal Democrat councils up and down the country. They sold a property for £100,000 that was subsequently sold for £1 million, a loss of £900,000 to the taxpayers of the Isle of Wight. It was the Prince Consort in Ryde, in case anyone wishes to queue up for another property at such a price. They should bear in mind, however, that the new administration will take more care to sell things at their proper value. The Liberal Democrats also rented some office accommodation, called Enterprise House, for £300,000 a year and then left it empty. They built a lay-by for £250,000 and employed four chief executives in four years. They held a very successful pop festival, now in its third year, but they budgeted £30,000 for it in the first year and spent £380,000. They also tried to sell a property known as Northwood House, but they had to pay compensation to the prospective purchaser, because they discovered that they did not own the property after he had incurred considerable expenditure. That is the record of the Liberal Democrats in my constituency.
	When the right hon. Member for Greenwich and Woolwich, the former Minister, undertook his balance of funding review three years ago, the county treasurer predicted that the Liberal Democrats would have to put up local taxes by 11 per cent. to account for the loss of money that the Government would take away. In the event, the Government gave the council more money—unlike most Conservative councils—so I led an all-party delegation to meet the right hon. Gentleman. Out of his munificence, he took £1 million from Hampshire and gave it to the Isle of Wight. The total benefit has been £13 million over the past three years, but the reaction of the Liberal Democrats was not to increase council tax by 11 per cent., but to increase it by 14 per cent.
	That is the record of the Liberal Democrats. If one spends more, one has to tax more. That is what drove the Liberal Democrats out of control after 20 years in county hall on the Isle of Wight and will doubtless do so elsewhere. It is said, "If it ain't broke, don't fix it." Well, I recognise that the local government funding system is to some extent broke, and needs to be fixed. If it is to be fixed properly, we need to identify the causes of the breakdown before we try to fix it. The cause of the breakdown, whether it is the Liberal Democrats locally or the Labour Government nationally, is trying to screw too much out of the taxpayer. We should all remember the message that if one spends more, one has to tax more.

Alison Seabeck: I have listened to the debate with great interest but with sadness, because it is depressing that after eight years in opposition the Conservatives have failed to come up with any detailed proposals for a replacement for the tax they introduced in such haste to replace the deeply unpopular poll tax. This Government understand the need for a detailed and thoughtful approach to this complex subject.
	For the Opposition to give an open-ended commitment, which would have to be met by the general taxpayer and central taxation, to support pensioners, whether well-off or not, is rash. Their sweeping commitment takes no account of the annually changing local government tax-raising level. The Chancellor of the Exchequer of course fully understands that position, which is why he has ensured that this year pensioners were protected from the excessive pressures put on them by council tax increases.
	The Conservative proposals—I say that generously, as we have heard only one idea—do nothing to assist hard-working families or students. If additional payments to pensioners are to be made, the funding would have to be found from other taxpayers. Surely, it is better to work towards a fairer system of local taxation, so it is right that Sir Michael Lyons be given time before reporting to consider fully the implications of all the issues, such as rebanding, revaluation, council tax benefit, and how any changes will affect all groups in our society. He, too, understands that we cannot have a property-based tax without a revaluation process. Just about everyone understands that, apart from Her Majesty's Opposition.
	The Opposition fail to understand the complexity of the local taxation system, but the Liberal Democrat proposals are seriously problematic, too. The hon. Member for Bournemouth, West (Sir John Butterfill), who is not in the Chamber at present, made an effective demolition of the Liberal Democrat local income tax proposals. Have the Liberal Democrats considered the impact of those proposals, especially on the accounts departments of small and medium-sized businesses? Those businesses would have to cope with individual workers living in different local authority areas, all with different levels of tax, and who might, when they moved house, be required to have a complete reassessment of their tax position. That is a recipe for complexity, delay and error.

Edward Davey: Has the hon. Lady read the Chartered Institute of Public Finance and Accountancy report, in 2004, on local income tax? It shows that pay-as-you-earn coding could be altered so that the employer had all the details of each employee, so no change would be needed and the system could operate exactly as it does now at no extra cost.

Alison Seabeck: I have read elements of the report and I do not agree with the hon. Gentleman's assessment or indeed some of CIPFA's comments.
	I will not revisit the problems of local income tax as they were extremely well highlighted in the contribution of my right hon. Friend the Member for Greenwich and Woolwich (Mr. Raynsford).

Kevan Jones: Is not one of the complexities of this crazy local income tax scheme that the tax could vary in different parts of the country? The situation could be complex for the accounts department of a local employer with employees who lived in a variety of places.

Alison Seabeck: My hon. Friend is right.
	I close by saying to my hon. Friend the Minister for Local Government that I look forward to the review and report of Sir Michael Lyons and to the detailed consultation and debate that will, I am sure, take place in the House.
	[Interruption.]

Mr. Deputy Speaker: Hon. Members who are desirous of catching the eye of the occupant of the Chair should signify that by rising in their place.

Philip Dunne: Thank you, Mr.   Deputy Speaker. I had not appreciated that the hon. Lady would conclude her remarks so rapidly.
	I am interested in the debate because council tax was the issue above all others that was raised with me on the doorstep during the election. That may have been due to the accident of council tax bills arriving shortly before the election was called, but the issue is alive and well.
	It is important for Labour Members to hear the experience of those of us who represent rural seats, because in the Ludlow constituency, which I am honoured to represent, there are no longer any Labour elected representatives, except for one on Bridgnorth district council who gamely bears the flag. However, there are no Labour candidates standing in South Shropshire district council. Consequently, it is very hard for those who are interested in supporting the Government to do so in my constituency, I am pleased to say.
	We in the Ludlow constituency have a regrettably low average income. I will return to that in a moment, but it colours my remarks. Council tax is a severe burden on many people in my constituency—especially for those on fixed incomes, and pensioners, as other hon. Members have remarked—but we are fortunate in that we can compare and contrast the approach that at least two Opposition parties adopt to the levying of local authority bills. We have two district councils in the Ludlow constituency—South Shropshire, which is dominated by the Liberal Democrats, and Bridgnorth, which is led by a Conservative and independent administration—and I should like to share with hon. Members the contrasting approach to council tax of those two authorities.
	Eighteen months ago, the Liberal Democrats proposed a medium-term financial strategy, with a staggering 9.5 per cent. a year increase in council tax proposed for each of the following three years. They were only prevented from introducing such a high increase thanks to the Deputy Prime Minister choosing to reintroduce the capping of local authorities and their fear that that might happen both last year and this year ahead of the general election.
	By contrast, I, who happened to be leader of the Conservative group on South Shropshire district council, proposed a zero per cent. increase in council tax, without any cuts in services. Another contrast is provided in our neighbouring authority—Bridgnorth—where the district council rate for a band D property is almost exactly half of that levied by the Liberal Democrat administration in South Shrophshire.
	I am pleased to see the hon. Member for Telford (David Wright), who is a neighbouring Shropshire MP, joining us in the Chamber. I have been explaining how difficult it is for members of the Labour party to get representation, but they obviously have a representative in the House.
	It may be of interest to hon. Members—certainly to Ministers—to know that, since the Liberal Democrats took control of the local authority in Stockport in 1999, band D council tax has increased by £335, to £1,252, which is significantly above the national average and an increase of nearly 37 per cent. over five years. Stockport has some relevance to the electors of Cheadle at the moment. My prediction is that if we were to go down a local income tax route, those of us who are unfortunate enough to be represented by Liberal Democrat authorities would face considerably larger increases each year than those of us who live in Conservative authorities.
	One of the specific problems that I should like to highlight—my hon. Friend the Member for Isle of Wight (Mr. Turner) has referred to this—relates to the balance of funding and equalisation issue and the redistribution of funds raised locally from those areas, such as my constituency, with lower than average incomes. Where incomes are lower than the national average, there are clearly two ways that the amount of revenue could be found: either by substantially increasing the average local income tax levied by that authority, or by increasing further the amount of equalisation funding that would come from central Government.
	It is hard to understand how either way would benefit the authority's residents, such as those in my constituency, who would either have to rely on central Government handouts even more than they do at present or suffer a substantial increase in local income tax. The Liberals have estimated a 3.75 per cent. average local income tax if their proposals were introduced throughout the country. We estimate that they would need to raise between 6 and 7 per cent. in our area—roughly double their estimate—to secure the same local authority revenue, because incomes are substantially lower than the national average.
	The next point that I wish to touch on briefly is the question of administrative complexity. The Liberals have placed great faith in the Inland Revenue's ability to see through the coding structure and the huge potential complexity of individuals being charged different precepts in different areas. Many of my constituents, particularly in the east of the constituency around Bridgnorth, work outside the local authority area in which they live. The Inland Revenue would have to find out in which county, district, region—God forbid that the regional income tax that the Liberals want is introduced—town and parish those people live, because each authority would have the potential to levy a variable rate. Each individual may move in the course of a year. I accept that, at present, the Inland Revenue has an address, but it would have to be notified each time someone moved.

David Howarth: The Revenue would change the address at the end of the year.

Philip Dunne: The hon. Gentleman says that the Inland Revenue could be notified once a year, but it would surely have to change the tax coding during the year if a person moved more than once. That point is not taken into account.
	The Liberals claim that the Chartered Institute of Public Finance and Accountancy has come to their aid on the point about administration, but it said on 4 March 2004 in its review of the case for a local income tax that
	"assuming a variable LIT rate, we have estimated the additional compliance burden"—
	on business—
	"to be £100 million, based on additional time devoted to administering a large number of annual coding variations".
	CIPFA also noted that it would take as long as five years for employers to introduce the necessary changes to their own coding structures and to be ready for the introduction of such a tax. I do not think that CIPFA has helped the Liberal Democrats' case unless they want to impose further administrative costs on business. That may well be the case.
	CIPFA has also considered the issue of equalisation and the same report says:
	"LIT would . . . place greater demands on the need for resources equalisation between areas . . . As a consequence, there is a possibility that although the perverse effect of high gearing on the overall average tax rises would be reduced, the ratios for a number of individual authorities could grow wider."
	In effect, there would be increasing demands in different authorities for more central Government intervention. That is precisely what many of us are trying to avoid in the existing council tax scheme.
	For those reasons, a local income tax would be exceptionally difficult and would not achieve the laudable aims that the Liberal Democrats might originally have set for it.

Jo Swinson: I welcome this debate on a subject that is of great concern to many of my constituents in East Dunbartonshire. The Conservative Members who have spoken are certainly right in one respect—the current system of council tax places an unfair burden on many people, particularly those on low incomes such as pensioners. Across the country, council tax bills have risen faster than inflation as local authorities have struggled to cope with additional responsibilities handed down by central Government, but often without the additional resources to deliver. Thus the council tax has essentially been used as a stealth tax, often penalising those who can afford it least.
	It is a shocking state of affairs that the poorest people pay 6 per cent. of their income in council tax but the richest pay just 1.5 per cent. That surely cannot be right and it shows just how regressive and unjust this tax is. It is only due to get worse with the proposed rebanding exercise. We have already seen what has happened in Wales, where many people are now paying much more. For example, in Cardiff, two thirds of houses went up at least a band. Scotland, thanks to the Liberal Democrats, has a reprieve from the council tax revaluation while the independent review looks into the issue of local government finance.

Ben Wallace: When I was a Member of the Scottish Parliament, I distinctly remember that the Lib Dems supported a rise in business rates with the Labour Administration. At no time under both coalition agreements—first in 1999 and then again in 2003—was local income tax, or indeed the regressive rate of council tax, raised by the Liberal Democrats at all. Is that not completely contrary to your position here today?

Mr. Deputy Speaker: Order. Before the hon. Lady replies, I remind the hon. Gentleman that he must refer to another hon. Member in the third person.

Jo Swinson: I welcome the hon. Gentleman to the House. He will recall that the Liberal Democrats in Scotland consistently argued that the council tax was unfair. Through the many negotiations in which the Liberal Democrats have taken part, we have secured many policy commitments that the people of England and Wales do not enjoy, such as free personal care for the elderly and the abolition of tuition fees. We are campaigning on council tax and I have put forward a submission to the independent review that argues strongly for getting rid of the council tax and introducing a local income tax.
	The main problem with the current system is that it bears no relation whatsoever to people's ability to pay. Many of the people who have complained to me about the unfairness of council tax are elderly, which is not surprising because it is an especially unfair tax for pensioners. They might be living in a fairly sizeable family home, but they have a much smaller income than they did in the days when they were out working and paying the mortgage. We have now reached the point at which no amount of tinkering around the edges will solve the problem. The pre-election bribe to pensioners of a one-off payment to help with their council tax did not fool anyone. The problem is the unfairness of the system, which will not be solved by further complicating the council tax through handouts and making special cases. Instead, the best solution is a local income tax.
	During the recent election campaign, I found strong support in East Dunbartonshire for the policy of replacing council tax with a local income tax. In fact, I was moved to speak in the debate following an experience that I had last Friday night. I was knocking on doors in Bishopbriggs—what better activity could there be for a Friday evening—and met a gentleman and his wife to whom I spoke about a range of issues. He said that council tax was the most important issue to him and made a plea to me to keep pushing for a local income tax because the council tax was so unfair. He explained the problems that it was causing him and his wife as a pensioner couple who had bought their semi-detached home many years ago. They did not want to feel forced to move out of their home as a result of council tax bills. I promised him that I certainly would continue to argue for an end to the unfair council tax and its replacement with a fair alternative, so that is what I am doing.
	In debates such as this, I often find, as I have today, that incorrect assumptions are made. I represent what has been described as the most middle-class constituency in Scotland, so some might assume that advocating a local income tax would be a vote loser in the affluent area of Bearsden and Milngavie—quite the contrary. Amidst the leafy suburbs, there is hidden poverty, often pensioner poverty. While we in the House might be privileged to earn salaries that are far above the norm, let us not forget the reality in our constituencies. Even in my middle-class constituency, the average household income is less than £25,000. Quite frankly, bandying about figures suggesting that an average household in Britain has two full-time wage earners bringing in more than £50,000 a year just helps to reaffirm in people's minds the feeling that politicians are out of touch. Let us not fall into that trap, because I am sure that no hon. Member here wants to be seen as out of touch.

David Taylor: I intend to go directly to the Commons Library to check the hon. Lady's two assertions that she represents the most middle-class constituency in Scotland and yet its average household income is less than £25,000 a year. Those two facts seem to be utterly irreconcilable.

Jo Swinson: That demonstrates my point. If you check the figures, you will find that in Richmond, which many people see as affluent—

Mr. Deputy Speaker: Order. Perhaps the hon. Lady would remember what I said to the hon. Member for Lancaster and Wyre (Mr. Wallace).

Jo Swinson: I apologise, Mr. Deputy Speaker.
	If the hon. Gentleman checks the Library figures for Richmond, which many people would agree is an affluent area, he will see that it has an average household income of £27,000 a year. People tend to forget that most households do not have two full-time wage earners. Many households are made up of pensioners, one person earning a wage or people working part-time. That adequately demonstrates my point that politicians are often out of touch with what is happening on the ground.
	Finally, I cannot resist noting the irony of the Conservatives calling for this debate. Perhaps that is because I am from Scotland, where the lasting image of the Conservatives is one of Thatcher imposing the poll tax. She used Scotland as the guinea pig, and of course the protests went unheeded until England complained. During the recent election campaign, the Conservative leader said:
	"Council tax is the best form of local taxation there is".
	Such disregard for people's huge concerns about the council tax system, coupled with the memory of the imposition of the poll tax and the blatant lack of substance of policy, means that the Tories have no credibility on this matter.

Anne Milton: It has been said that council tax became unpopular only when it started to increase. That is probably true. There is no doubt that it is a fact in my constituency. It is not only the increase that is the problem, but the increasing knowledge among local people of what is happening to that money. Council tax in Guildford has risen by 92 per cent. since 1997–98. That is, without a doubt, mirrored to some extent in Waverley. We heard that the average council tax on a band D home has gone up 76 per cent. in the same period. Now we all face the revaluation. I cannot tell hon. Members how worried residents in Guildford are about that, and the experience in Wales does nothing to reassure them.
	We heard a long speech about local income tax from the Liberal Benches, but I must be allowed my two-pennyworth. What about hard-working families? What about the teacher and nurse who live together? What about the pensioners and their savings, from which they derive a much-needed income? It irritates me enormously when the Liberals refer to pensioners. Some pensioners are slightly wealthier than others. Not all are poor. Some have worked hard all their lives and saved hard, but they are going to be taxed on that income. Also, what about students? What about people in residential care homes and nursing homes? All those people would be hit by a local income tax.
	I have a list of all the taxes favoured by Liberal Democrats, who love taxes because they think they keep people in their place. They are: VAT on new homes, stealth inheritance tax, speed camera tax, rubbish tax, plastic bag tax, parking taxes to shop, parking taxes on business, land tax, income tax at a new regional rate and a new local rate, hotel taxes, 4x4 taxes. I could go on—

Phil Woolas: Keep going.

Anne Milton: I could, but the fact remains that the local income tax would still be collected by central Government. Nothing local is going to happen on local income taxes.
	Hon. Members talked about the various ways of raising money for local services. What is talked about less is what happens to the money when we have got it. That is my problem with the Government. The burden of red tape, regulation, the extra services and the hoops that local councils have to jump through increases yearly.
	I defy anyone to find me a local government officer who would not say the same thing. Councils have to provide more and more, and jump through all the hoops, but they are not receiving the funding that should come with it. Local government is without doubt enormously complex, but the increased burden of regulation, red tape and all the things that councils have to do means that it is getting unbearable. Most local government officers feel that there is a tight rope around their waists.
	I have campaigned yearly on the council tax increases in Guildford. I even took to the streets and marched from one end of my constituency to the other. It is a shame that people do not take to the streets more often. I did that because of the 92 per cent. increase in council tax for the people of Guildford. It is unbearable. It cannot go on, and they cannot go on paying for central Government regulations that are passed down, with the burden shouldered by local people.

Stephen Crabb: I am pleased to participate in this important debate on local taxation, which is probably one of the most pressing subjects that we will consider in the months and years ahead, but is one which, as the Minister said, few people understand fully. I hastily stress that I am with the majority on that. I am certainly not one of those who claim expert knowledge of the intricacies of local government finance.
	What I am, I hope, in a position to do is to say a few words about the recent experience of council tax revaluation in Wales, and in particular to draw attention to the resentment and anger felt by many council tax payers in the Principality as a result of what many see as one of the most blatant examples of a stealth tax that we have seen in recent years.
	The rebanding in Wales has left a bitter taste in the mouths of many council tax payers who saw their real incomes eroded as they were hit this year by a double whammy of the usual council tax increase and the uplift as a result of rebanding. The rebanding exercise came against a backdrop of a step-change in the burden council tax payers in Wales were being asked to shoulder under the Government.
	Between 1998 and 2004, revenue expenditure in Wales increased by 44 per cent. to around £5 billion. That expenditure was funded principally from central Government grants, which increased by 40 per cent. over the period; council tax, which increased by a whopping 78 per cent. over the same period; and the share of non-domestic rates, which increased by only 13 per cent. Council tax payers in Wales are now paying for around 20 per cent. of revenue expenditure compared with 15 per cent. eight years ago. Council tax payers are becoming more important as a source of local government finance and they have been asked to pay more and more. As a consequence, they have every right to ask what they are getting in return for their money.
	During the recent election campaign, I lost count of the number of people on the doorstep who made the comment that £1,000 a year is a lot to pay for their rubbish to be collected, that being the only service from which they feel they benefit. Many people in Pembrokeshire do not think that the 70 per cent. increase in council tax over the past eight years has bought them significantly improved local public services.
	That is the context under which revaluation took place in Wales. When the Welsh Assembly first announced its plans for revaluation, it was claimed that it would not lead to a significant increase in the taxes paid by Welsh households. It would be revenue neutral, to use that horrible piece of Whitehall jargon. The Labour Assembly Minister in September 2003 stated:
	"revaluation is not a means of increasing the total amount of council tax raised, and it doesn't follow that all council tax bills will rise. There will be movements within the banding system and changes in bills, but we estimate that half of Welsh homes will remain in the same band, around a quarter will move down the banding system and a similar number will move up."
	The Assembly also pointed out that, as the underlying assumption is that the income from council tax will not change as a result of revaluation, it does not necessarily mean that all those moving up bands will pay increased council tax.

Adam Price: It is true in Wales as well as in England that local government is responsible for education, social services and much wider things than just waste collection. Does the hon. Gentleman not think it fair that those core public services should be paid for by an income tax system rather than a property tax?

Stephen Crabb: No, I do not necessarily accept that. Taxation must be transparent and fair. There must certainly be an element that is geared towards ability to pay. My point is about the way revaluation was undertaken in Wales.
	So much for the spin from the Welsh Assembly about revaluation. In the event, only 8 per cent. of homes moved down a band, but more than a third moved up. A total of 28 per cent. of homes moved up by one band, 5 per cent. by two bands and almost 1 per cent. by three bands. Nothing breeds resentment and cynicism more than broken promises and misinformation. People in Wales think that council tax revaluation was another stealth tax or a backdoor tax hike. The revaluation process, as proposed by the Welsh Assembly Government, meant that, although there was no change in the headline rate of council tax, local residents faced higher bills. In Cardiff, 64 per cent. of homes went up by at least one band, and Wrexham, Vale of Glamorgan and Powys were particularly hard hit. In my county of Pembrokeshire, 35 per cent. of dwellings moved up at least one band.

Patrick McLoughlin: Will revaluation not be used by the Government to say that council tax as a percentage has not gone up? Following what happened in Wales, as my hon. Friend rightly demonstrated, many more people will pay far more, but the Government will still argue that the percentage raised by council tax has not gone up very much. In England, the amount of money that councils spend will rise, as will the amount of money that they take from people, but the Government will manage to argue that the percentages have not gone up very much.

Stephen Crabb: My right hon. Friend is right. Welsh Assembly Ministers tried their best to say that the average council tax had increased by only 4 per cent. this year, but were forced to admit that, overall, it had risen by almost 10 per cent. Labour Ministers claimed that there would be as many winners as losers, as if council tax were a dodgy fairground lottery, but in the end they had to admit that it had risen by more than 9 per cent. this year.

Eric Pickles: Will my hon. Friend confirm that, besides the increase for individual households, the amount collected for council tax has gone up by 10 per cent. in Wales?

Stephen Crabb: My hon. Friend has made an excellent point. It is worth bearing it in mind that, behind the numbers, real people are suffering, including pensioners whose only mistake was to work hard and buy their own home. In March, I met a D-day veteran who, within the space of a few short days, received two letters—one from the Pension Service, the other from the county council. One letter informed him of his weekly pension increase this year, the other of his council tax bill for the coming year. Calculated on a weekly basis, his council tax increase more than wiped out any increase in his pension. What was given with one hand was taken away with the other.
	That pensioner is not an isolated example. This spring, across Wales, people experienced a serious cut in their income and quality of life as a result of council tax. People in Wales are therefore angry about the council tax revaluation. They are also bewildered and confused about what rebanding means and how it works in practice. Earlier this year, Pembrokeshire householders woke up to a local front-page headline, "5 per cent. council tax rise likely". The report said:
	"Pembrokeshire County Council is likely to increase its demand on the council tax payer by five per cent next year."
	In fact, the council's demand on the council tax payer for the coming year was almost £28 million compared with £24.5 million last year—an increase of 13 per cent. Many people would like to know how the council can raise 13 per cent. more money from a mere 5 per cent. increase in band D tax. The answer, of course, is to be found in the revaluation exercise, as the tax base of band D properties has swollen from 45,000 to almost 49,000—an 8 per cent. increase. Making comparisons between this year's band D rate and the rate for last year is like comparing apples and pears. The headline figure of 5 per cent. was a gross underestimation of the actual increase.
	The Royal Institution of Chartered Surveyors recently undertook research into the revaluation in Wales and stated:
	"Council tax revaluation in England will lead to unduly large increases in council tax bills unless the tax bands are readjusted in line with house price inflation."
	Looking at the way in which revaluation was conducted in Wales, it said that rebanding was not carried out in line with Welsh house price inflation. It warned that, if the Welsh model were adopted in England, a disproportionate number of houses would move up into higher bands in southern regions, where house prices have risen above the national average since 1991.
	In conclusion, taxation must be simple, understandable and transparent, and it must not place disproportionate burdens on the people who pay it. In contrast, the council tax revaluation in Wales was complex, opaque and placed burdens on people. Under the Labour Government, householders in England have every reason to fear revaluation. This tax-hungry Government are running out of options for raising new money, so council tax payers in England should beware.

David Jones: As the second Welsh Conservative Member to contribute to our debate, may I say that it is a great shame that there are not any Labour or Liberal Democrat Back Benchers in the Chamber? This is an important debate, and the House has much to learn from the experience in Wales. Wales has shown us the future, and it does not work.
	Wales has suffered far more pain as a result of council tax in the past few years than virtually any other part of the country. In Denbighshire and Conwy, whose councils cover my constituency, the average band D tax has almost doubled over the past eight years. The position has been made infinitely worse by the revaluation exercise that has just been implemented in Wales. We were told that the exercise would be fiscally neutral, but, in Denbighshire, 29 per cent. of households have been rebanded upwards, while only 8.5 per cent. have been rebanded downwards. In Conwy, 32 per cent. went up, while only 6.5 per cent. went down. In the ward of Llandrillo-yn-Rhos in my constituency, more than 40 per cent. of homes have been rebanded upwards.
	The rebanding exercise is wholly unfair and amounts to a tax on house price inflation. Across Wales, there have been dramatic council tax increases. Some householders in my constituency have experienced increases this year of over 22 per cent, but the rises caused by rebanding are not simply reflected in comparisons between past and present band D figures. In Conwy, the average council tax has increased by 121 per cent. since 1997, while in Denbighshire the average increase is 105 per cent.
	Those increases have not been accompanied by an improvement in services—quite the reverse. Rebanding generates additional local revenue, but a sum in excess of that revenue is withheld by the Welsh Assembly from the local authority, whose general budget is therefore affected. Consequently, many thousands of Welsh council tax payers are paying substantially more tax for unimproved services. As my hon. Friend the Member for Meriden (Mrs. Spelman) said, that additional tax is an unashamed wealth tax. In fact, it is a stealth wealth tax, because it does not even have the decency to declare itself as a wealth tax.
	The council tax system certainly needs to be amended and revised, but I caution the House against going down the route of rebanding and revaluation. The Welsh experience is a bitter one and, if it is writ large across England, the Government will be in severe trouble with taxpayers. As for the Liberal Democrat proposals for a local income tax, most average earners—the people on £35,000 or so a year cited by the hon. Member for Twickenham (Dr. Cable)—would think that something was terribly amiss if they had to pay an extra £600 a year for unimproved services. I urge the House to accept a warning from Wales, and beware the future.

David Howarth: I shall deal with some of the points raised in the debate, starting with the   assumption by the hon. Member for Clwyd, West (Mr. Jones) that average incomes in this country are £35,000. That shows how out of touch he must be with ordinary lives. Average household income in the United Kingdom is about £26,000. The idea, as the hon. Member for Meriden (Mrs. Spelman) suggested, that under local income tax an average couple would find their bills rising by £650 seems to assume that the average couple in her constituency, or at least in her head, receive an income of around £50,000. That is extraordinary. Hon. Members should realise that people on salaries such as ours are in the top few per cent. of the population by income.
	Hon. Members, including the hon. Member for North Durham (Mr. Jones), who is no longer in his seat, have been concerned about two-earner couples. Figures from the Institute for Fiscal Studies show that half of two-earner couples would be better off under local income tax. Of course, it depends which band they are in at present, but in any case only one in 10 households has two full-time earners.
	The question of beneficiaries from local income tax was raised. Contrary to what the hon. Member for Meriden said, the main beneficiaries would be pensioners and the low paid. During the election I met people in my constituency who were paying £1,000 in council tax on an income of £10,000. In one extraordinary case, someone was paying £1,300 on an income of not much more than £10,000. I challenge the other two parties to tell those people face to face that they think a tax system that does that is in any way fair. The council tax is an extraordinarily regressive tax. The local income tax provides a permanent solution to the regressive nature of that tax, not just a one-off that might work for a few people for a short time.
	The idea has constantly been repeated that under local income tax, each local authority would collect the tax. That is not how it works in any other country in which it works properly. The system is administered by the national tax authorities and the same rules apply to local income tax. There is no requirement at all for a separate administration in separate local authorities.
	Various hon. Members, including the hon. Members for Guildford (Anne Milton) and for Bournemouth, West (Sir John Butterfill) and, very surprisingly, the right hon. Member for Greenwich and Woolwich (Mr.   Raynsford), confused setting the rate and collecting the tax. It is quite possible for local authorities to set different rates, yet for the tax to be collected through the national revenue system. The right hon. Member for Greenwich and Woolwich tried to make out that only PAYE payers of income tax would be caught by local income tax. That is not the case.

Phil Woolas: I think the hon. Gentleman will find that my right hon. Friend was quoting the Liberal Democrat spokesperson on PAYE as the basis of the local income tax. If the policy has changed, I should be grateful if the hon. Gentleman would let the House know. On his main point about collection, could he clarify the answer to the other question raised: where would the local income tax be assessed—on the place of work or the place of residence?

David Howarth: Clearly, local income tax would be assessed on the place of residence. I am not aware of any policy change. The policy has been unchanged for many years. I do not understand where the right hon. Member for Greenwich and Woolwich got his idea from.

Phil Woolas: I am grateful for that clarification, for which I have waited about 18 years in various debates with the Liberal Democrats. Can the hon. Gentleman confirm, therefore, that in a central Manchester location—say, British Aerospace—workers working alongside each other would pay different rates of local income tax?

David Howarth: Indeed. That is correct in all places that have local income tax. As I tried to make clear in an intervention, the Revenue already knows where people live. That is how people receive their coding notices.

Phil Woolas: rose—

David Howarth: I give way for the last time, as this is technically a Back-Bench speech.

Phil Woolas: I am asking these questions in a spirit of genuine inquiry. On the point made by the hon. Member for Bournemouth, West (Sir John Butterfill), does the hon. Gentleman accept that because labour is more mobile than property, such differentials in local income tax are likely to produce a rapid movement in labour—that is, people moving into lower income tax councils—than is currently the case with council tax?

David Howarth: That has not been the experience in the rest of the world.
	One hon. Member raised a point about student nurses, which my hon. Friend the Member for Brent, East (Sarah Teather) answered, although I am not sure other hon. Members heard her answer. The bursaries that student nurses receive are not taxable. According to the basic rule, the tax system locally and nationally would be based on the same tax code, so student nurse bursaries would not be taxable under local income tax either.

Ben Wallace: Will the hon. Gentleman give way?

David Howarth: No, I am sorry. I do not have much time left. I might give way at the end, if I have some time.
	Mention was made of shared houses, which are often very large. The comparison must be made not with the average band of council tax, but with the actual band within which those houses fall. That is likely to be at the higher end, possibly even in band H. Even a single-earner household in band H can find itself not losing from local income tax on an income of almost £75,000 a year.
	Another point that was raised quite frequently related to tax avoidance. As we tried to make clear in the debate, our view is that second homes should be treated as businesses. They would therefore fall to be taxed under our land value taxation proposal. Our view is that that also meets the worries about foreign-owned properties.

Eric Pickles: If a property is occupied all year round, every day of the year, would it fall into that category if it was owned by a foreign national?

David Howarth: As I said, second homes would fall under the business rate regime and taxpayers would have to opt for which of their various homes was their main residence.
	The hon. Member for Southampton, Test (Dr. Whitehead) raised a good point about business rates. One important point that he did not seem to take on board was that if business rates are relocalised, the ratio between national and local tax-raising is automatically changed, and our proposal is to relocalise business rates.
	The hon. Member for Nottingham, North (Mr. Allen), who I am sorry to see is not in his place, and who did not have an opportunity to speak, raised an extremely important point about the connection between financial settlements and the constitutional settlement. I agree entirely that there needs to be a new constitutional settlement between national and local government, as well as a new financial settlement. The two must go together.
	The hon. Member for Bournemouth, West asked a simple question—who would pay under local income tax? The answer is people who pay national income tax. It is not true to say, as various hon. Members have tried to argue, that there would be no redistribution under the local income tax proposal. There is redistribution under all local taxation systems. The various questions about tax bases are misplaced.
	I was somewhat surprised at the contribution of the hon. Member for Ludlow (Mr. Dunne) who at one stage in his remarks said that under the local income tax proposal, there would be a massive increase in tax in his area, assuming that there would be no redistribution. He followed that with his second criticism, that the redistribution under local income tax would be too great. He cannot have it both ways. He must make one criticism or the other.
	No taxation system is perfect, and none is likely to be popular, but our local income tax proposal is fair, efficient and cheap to administer. It uses an existing system, it reduces local bureaucracy—there is no need for a local valuation or benefits bureaucracy—it makes decentralisation more possible in the future, it increases accountability and it works elsewhere.
	The only opponents of local income tax are those with a vested interest in protecting those on very high incomes. Traditionally in this House they have been members of the Conservative party. I hope that they are not joined in that position by new Labour.

Ben Wallace: Thank you, Madam Deputy Speaker, for giving me the chance to speak. I thought that it was important that I should do so when my hon. Friends the Members for Clwyd, West (Mr. Jones) and for Preseli Pembrokeshire (Mr. Crabb) decided to allude to the record and the progress of the Liberal Democrats in coalition in that part of the United Kingdom. I thought that I could bring my experience to the House from the Scottish Parliament, where the Liberal Democrats have been in power for nearly seven years now, with the Labour party. I thought also that it might be interesting and important to translate rhetoric into reality under the Lib Dems.
	Anyone with experience of the Lib Dems in power, either in a local authority or an Administration, as in Wales or Scotland, will find that that reality is different from the stated policy aims of their party. As I said to the hon. Member for East Dunbartonshire (Jo Swinson), when the Lib Dems came into power with the Labour party in Scotland, one of the first things they did was to vote to increase the business rate. Under the current system they made Scotland less advantageous as a country in which to settle a business than the other countries of the United Kingdom. That shows clearly that there is a difference between what the Lib Dems say and what they do.
	In neither of the coalition documents—the documents set down, first, with Donald Dewar, a former Member of this place, and with Jack McConnell, the First Minister of Scotland—did the Lib Dems ever raise the unjust system of council tax and the demands to reform it. That campaign was not part of those documents. Interestingly enough, the Lib Dems wanted to reform the voting system for local authorities. Clearly it was more important to get themselves into power first before they tackled incomes and the difficulties for people in terms of council taxes.
	I represented the north-east of Scotland—Aberdeenshire—where I was under a Liberal Democrat council. Many Members may remember that during the recent general election the Liberal Democrats campaigned on local issues, including saving bus services. The Lib Dem candidate whom I faced campaigned to prevent Lancashire county council from cutting bus services, even though the council was under Labour control and it was not going to cut bus services. Under the Lib Dem administration in Aberdeenshire, school bus services were cut. There we go again. We also saw our council tax raised to a higher and higher level every year. It is important to contrast rhetoric with reality.
	There is talk of free personal care. The hon. Member for East Dunbartonshire laid claim once again to that, but it is important to note that the Liberal Democrats voted on two separate occasions in the Scottish Parliament against free personal care.

Madam Deputy Speaker: Order. We are not discussing free personal care, but local council tax.

Ben Wallace: I am grateful, Madam Deputy Speaker. I am trying to point out the difference between rhetoric and reality in the context of the Liberal Democrats. That leads into the detail of income tax.
	I am a member of the party that introduced the poll tax. The hon. Member for Carmarthen, East and Dinefwr (Adam Price) pointed out that trying to link the use of services to the rate of pay was, in one sense, a noble aim in that a poll tax should be based on consumption. However, problems were faced when the poll tax was implemented. Local income tax seems an attractive policy on the Lib Dem website, but when we start asking questions about PAYE and how the tax will deal with large-scale redundancies in an area, issues arise about the income base. For example, my constituency is next to British Aerospace and Springfield nuclear fuels. There is also a manufacturing plant in Calder Vale, which recently announced a fairly large number of redundancies. How would local income tax respond to that, for example? There are more than 3,000 jobs—perhaps 10,000—that are reliant on British Aerospace.

David Howarth: I am grateful to the hon. Gentleman for allowing me to intervene given that I did not allow him to intervene on me.
	The answer is that in the current year there would be no change and no problem. The grant would be as it was in the previous year. The redistributive system would be able to adjust in the following year.

Ben Wallace: It is interesting to consider what we would be saying to the boundary committee. In future, it would have to redraft boundaries to take into account redundancies for the year before or the year before that. We would all find ourselves within peculiar district or county boundaries, which would be redrawn not on the basis of geography but on that of income. That has to be noted.
	As for students, I take the hon. Gentleman's point that bursaries would not be taxed. However, there is a range of students who do not receive bursaries but who earn income. There are some who perhaps pay tuition fees. They go out and earn during all their holidays or during term time. If their earnings are above the threshold, do they suddenly become liable for local income tax? All students who currently have a de facto exemption would be brought into the tax bracket.
	Another example is cadets. Armed forces personnel sponsored by the Ministry of Defence as cadets are paid a salary. Every cadetship officer or cadet in any of the armed forces will immediately—I think they get about £7,000 a year—come within the scope of taxation. That means that another group of people will be brought into the system.
	I have mentioned the footprint but there is another word of which I am rather suspicious, and that is "affordable". We have heard quite a lot from the Liberal Democrats that the tax will be affordable and that people could pay it. I could live in a large house and have no income, or a low income, or I could choose to sell my house and live in a small house, putting my money into dividends so as to get an income in that way. Affordable is a subjective concept that creeps into the conversation or into policy. What exactly is affordable? That issue must not be overlooked in the long run.
	The contrast between rhetoric and reality is interesting. We must consider the record of a party that has set the highest rates of council tax throughout the United Kingdom. Why could we trust it to run a local income tax system? It is interesting that, according to its current policy, it wants to repatriate business rates on a local level. The income generated by Aberdeenshire has funded a large part of Scotland. On the basis of localisation, however, the constituency of the hon. Member for East Dunbartonshire would lose out and Aberdeenshire would be very rich, thank you very much. That is a peculiar way in which to manage local government finance.
	I think that everyone agrees that we are dealing with a difficult issue. However, I agree with those on the Opposition Front Bench that people did not complain about council tax until the level of that tax became higher and higher. There are people who say to me that they quite like the idea of a local income tax. I then go through it, explain it and ask them questions. For example, I ask them, "Would you be upset if your council tax was half the price?" They then say that that is not really the issue. There are many questions still to be answered on local income tax detail. There is PAYE, dividend payments and income from other areas. How will those factors be taken into account?
	There are some similarities between local income tax and the poll tax in the sense that the number of people in a house will often determine the rates that people will be paying. There could be three earners in a house. There are many in that position because housing is not very affordable. Many young men and women are living with their parents, which means that sometimes there are three income earners rather than two or one. I have serious concerns about the application of local income tax in reality and I therefore urge the House to support the Opposition's amendment.

Jeremy Hunt: I am most grateful to you, Madam Deputy Speaker, as I have spoken only three times in this House and each time you have been in the Chair. I am beginning to think that you must be my lucky charm, and I hope that you will call me many times in the future.
	There is no doubt that council tax has several difficulties, including those to do with its structure. However, it is not, as Liberal Democrat Members claim, a wholly regressive tax. Some taxes are purely regressive—road tax, for example. The air passenger levy is a purely regressive tax because one pays exactly the same no matter what one's income or wealth. Council tax is mildly, although not perfectly, progressive, because, broadly speaking, the bigger and more expensive the house one has, the more one pays.
	When I was campaigning to win my seat in the last general election, I met a pensioner whose council tax was higher than his pension. There is no doubt that that is a problem. However, it is a question not only of the structure of the tax but of its level. In many places, including my constituency, council tax has doubled since 1997. If one has a mildly regressive tax and then proceeds to double it, a small injustice becomes a big injustice, and that is what has happened. In my constituency, the local income tax cost the Liberal Democrats votes. That was not only because teachers, doctors and nurses saw that their tax would increase, but because in places where Liberal Democrats ran the council, they increased council tax. In my area of Waverley, they increased it by nearly double the rate of Guildford next door. People felt that it was hypocritical of the Liberal Democrats to say how awful council tax was for pensioners, and then, when they had a chance in power to do something about it, to increase it in ways that were painful to those same pensioners. The danger with local income tax is that one not very successful system will be replaced by one that is even less successful.

Richard Benyon: Will my hon. Friend join me in congratulating the Liberal Democrats on their wonderful website, "Axe the Tax"? That is one of the reasons why I am here, because towards the end of the general election I ended up suggesting to householders that they look at the proposal to see how much more the local income tax would cost them.

Jeremy Hunt: I am not accustomed to congratulating Liberal Democrats on their campaigning techniques, but in that respect I wholeheartedly agree with my hon. Friend.
	This is, in all seriousness, something that the Liberal Democrats need to consider. My constituency is an expensive part of the world and, yes, there are people on high salaries, but there are also people on low salaries who have to deal with very high costs. I met a couple of teachers who lived together in Godalming. They had bought their first house with their first mortgage, and their combined salary was around £60,000. I accept that in some parts of the country that is a very generous amount of money to live on, but it is not much when one is having to buy a very expensive house and to deal with a mortgage on it. That couple's council tax would increase by about £600 under the local income tax, and they would really suffer. When I talked to pensioners who would benefit from the local income tax, would many of them stop thinking that it was a good idea if I explained to them that the reason why they would benefit is that hard-working young couples would have their taxes increased in return.
	On top of that, there are all the problems about the cost of collecting local income tax and about equalisation. That is significant for my part of the world.

Anne Main: Unfortunately, we have exactly the same problem in St. Albans. Even a starter home costs about £200,000, which is more than three times the income of the couple my hon. Friend mentioned. The Liberal Democrats assume that a high house price equals wealth, but that is not so. The biggest flaw with the local income tax is that it takes no account of the fact that many people—often key workers such as police, nurses and teachers—will need to have a huge mortgage to live in areas such as St. Albans, Guildford, and my hon. Friend's constituency.

Madam Deputy Speaker: Order. I am afraid that the hon. Lady must keep interventions brief.

Jeremy Hunt: None the less, I am grateful to my hon. Friend for her valid point Madam Deputy Speaker. The local income tax might relieve the pain for some suffering groups but it would do so by transferring it to others who would suffer just as badly and are the very people whom we want to help—those who are just starting on the property ladder, are not on particularly high salaries and may find it hard to make ends meet.
	The other problem with the local income tax is that of equalisation across the regions. Income levels are very divergent in different parts of the country, and bodies such as the Chartered Institute of Public Finance and Accountancy warn that a local income tax would place greater demands on the need for resources equalisation between areas. One of the big injustices of the current system of local government funding is that Government grants lead to a great deal of reallocation of resources between different parts of the country, and that would have to increase under a local income tax.

David Howarth: It is entirely unclear whether that is true. There are also vast disparities in property values. The question is a relative one between disparities in property values and disparities in incomes. It is not clear that disparities in incomes are much wider.

Jeremy Hunt: The hon. Gentleman and I have to accept that neither of us knows the answer to that. The divergence in income levels might be higher than the divergence in property prices, and were that the case there would have to be even more resource equalisation.
	Local income tax fails to address the real problem in local taxation, which is that far too high a proportion of the funds spent by local government is not raised locally but distributed from national Government. That leads to all sorts of anomalies in the local taxation system. In the case of my own county council, Surrey, I discovered that a significant amount of its expenditure every year goes towards building cycle lanes, which it has to do on the basis of central Government diktat, not what the voters of Surrey chose as their priorities in electing it. Another significant factor for Surrey county council is that if it gets a bad grant one year, it may find that it has to put its taxes up even though it has been very prudent in managing money.
	In dealing with the issue of local taxation, we must ensure that people can vote for a local council that then reflects their choices. We need to reconnect local taxation with the people who pay for those services. In general, councils that tax and spend wisely tend to get voted in—coincidentally, they tend to be Conservative—and those that do not tax and spend wisely do not get voted in. People do not feel that local councils do a job that they can relate to directly or that their choices as voters will have a direct impact on the delivery of local services. That is the real issue, not whether we have a council tax or a local income tax.

Eric Pickles: It is a pleasure to follow my hon. Friend the Member for South-West Surrey (Mr. Hunt), who made an excellent speech in which he spoke with great integrity about the problems that his constituents face.
	The Minister of Communities and Local Government said three things with which Conservative Members can agree. He is not in his place, but with his customary kindness and courtesy he has given me a note saying that he regrets that he cannot be here as he has a prior engagement. First, we should like to associate ourselves with his remarks about the right hon. Member for Greenwich and Woolwich (Mr. Raynsford). The second matter on which we agree is that those on dual incomes would indeed be disadvantaged through a local income tax. The third point on which we agree is the link between council tax and Government grant and the importance of devolution not only to councils but to citizens. If that is the hallmark of the right hon. Gentleman's approach to local government, he can look to the Conservative Benches for some co-operation.
	I was, however, shocked that the Minister did not know that two out of three people who are eligible for council tax rebate fail to claim it. That marks a deterioration; it used to be three out of four people. It must be the only example of deterioration in the take-up of a benefit. I hope that the right hon. Gentleman will examine the matter urgently to encourage those who are entitled to the rebate to take it up.
	It was a pleasure to hear the hon. Member for Brent, East (Sarah Teather) speaking from the Front Bench. However, she appears to be in denial about whether the Liberal Democrats voted for revaluation. We have given her the dates and column references for 2003. She has been out of the Chamber for most of the debate, so surely she has been to the Library to check and is in a position to apologise to us for the Liberal Democrats' vote for revaluation.
	We voted against revaluation. I confess that there was a time when I believed it was a good idea, but I fear that I was deceived by the emperor's new clothes. Once we realised that the difference between the north and the south and between authorities would remain roughly the same as it was when the council tax was introduced, we did not see the point of spending hundreds of millions of pounds on a revaluation that would get us to precisely the same place. At least we found out that the hon. Member for Brent, East was one of the few remaining true believers in local income tax on the Liberal Democrat Front Bench.
	My hon. Friend the Member for Isle of Wight (Mr. Turner) spoke with great passion about the problems caused by local Liberal Democrats on that fine island. He managed to elicit from the Liberal Democrats some discussion of resource equalisation. Under the proposal, there would be more resource equalisation. I therefore look forward to meeting my hon. Friend on the streets of Cheadle, where he will bang on doors and explain that the position in the Isle of Wight and in Durham means that local income tax in Cheadle would have to be a little higher. I was shocked by the accounts of the incompetence of local Liberal Democrats.
	The hon. Members for Cambridge (David Howarth), for Brent, East and for Kingston and Surbiton (Mr. Davey) learned a valuable lesson: one should never intervene on my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) unless one is sure of one's facts. One of the pleasures of being here this afternoon was listening to my hon. Friend demolish the local income tax and the interventions.
	The right hon. Member for Greenwich and Woolwich appeared to be more robust about revaluation than his successor. The Government, certainly in the press, appear to be wobbling on it, and I look to the Minister for Local Government for a robust statement to the effect that revaluation will go ahead. For our guidance, we have some views from Mr. Geoff Mulgan, who is now director of the Institute of Community Studies but was formerly the Prime Minister's head of policy. He told the Chartered Institute of Public Finance and Accountancy, as he doubtless told the Prime Minister, that
	"revaluation is a complete nightmare just ahead",
	and that it was making local government reform "hard to sell". I am sure that he is right and that Ministers have inherited a poisoned chalice. If they have any sense, they will do their best to spit out the poison as soon as possible.
	My hon. Friend the Member for Ludlow (Mr. Dunne) spoke of unease about taxation. He spoke especially well about the problems of Stockport. My hon. Friend the Member for Guildford (Anne Milton) considered the problems of hard-working families. She gave us the example of a police officer married to a teacher and provided a long list of Liberal Democrat taxes. If she will forgive me, I should like to quote her predecessor, Sue Doughty, who was defeated at the general election:
	"local income tax was a real sticking point for them . . . young professionals such as two teachers living together struggling to pay the mortgage really didn't like the policy".
	Andy Mayer, the director of Liberal Future—if that is not a contradiction in terms—said that
	"we're not convinced that the association of income tax with fairness is correct".
	My hon. Friends the Members for Preseli Pembrokeshire (Mr. Crabb) and for Clwyd, West (Mr. Jones) spoke with great knowledge of the catastrophe that awaits the people of England following revaluation. On Second Reading of the Local Government Bill in 2003, which legislated for revaluation in England and Wales, the then Local Government Minister pledged that
	"revaluation will not lead to increases in the council tax yield."—[Official Report, 7 January 2003; Vol. 397 c. 53.]
	Sadly, that was not the case.
	No wonder the Association of London Government recently warned of the likely effect on London of revaluation, based on the Welsh experience. It stated:
	"The worrying prospect for London is that Cardiff appears to have fared badly as a result of the revaluation."

Roger Williams: Will the hon. Gentleman give way?

Eric Pickles: Of course. It is nice to see the hon. Gentleman.

Roger Williams: I have been here for rather longer than the winding-up speeches. The hon. Gentleman speaks of the nightmare of revaluation. Surely the nightmare is the council tax itself, which places such a burden on the poor and lets the rich off scot free. That has always been a Conservative policy.

Eric Pickles: If the hon. Gentleman had been here longer, he would have heard more of the arguments, but I shall deal with that point shortly.
	I am grateful to my hon. Friend the Member for Lancaster and Wyre (Mr. Wallace) for his knowledgeable contribution.
	The Government's dependency on council tax is a case study in addiction. It starts with a small transfer of a little public expenditure to councils, with the addition of the odd unfunded burden on local councils. Only a few people notice, and the Government begin to feel good. Now it has become a habit. Each year, a little bit more is added. Each year, it becomes more difficult to disguise the dependency. Every four years or so, the Government realise that they have a problem and they swear off the habit, only to fall off the wagon in a post-election binge. It will ultimately kill them.
	Some people believe that identity cards—the plastic poll tax—will bring the Government down. However, I believe that it is their abuse of property tax—revaluing and adding bands—that will bring them down. Even including an element of local income tax will make no difference. As The Independent put it,
	"The sensible response, therefore, ought to be to look at the causes of the rise."
	The causes of the rise are the causes of the problem. Labour Members and their Liberal Democrat allies are beginning to resemble "Desperado".
	"These things that are pleasin' you will hurt you some day".
	That day is known: it is 2007. The Government's world will truly rock—to its foundations. They will bitterly regret fiddling the council tax.

Phil Woolas: Thank you, Madam Deputy Speaker, for calling me to speak in this debate. I saw its title, but I should have realised that its real subject would be the Cheadle by-election. The Opposition have clearly not grasped this opportunity to hold the actions of Her Majesty's Government to account. Rather, it has been an Opposition day debate in the sense that the Opposition have been opposing the Opposition, who in turn have been opposing the Opposition's opposition to the Opposition. I think that the watching public will be very confused indeed.
	Two Members have taken part in today's debate: the hon. Member for Scaremongering, South, representing the Conservative Front Bench, and the hon. Lady for Naive, North, presenting the Liberal Democrats' ideas for a local income tax. In relation to the review of the balance of funding between local taxpayers and the national contribution, we should point out that the national contribution comes from taxpayers, not from the Chancellor's back pocket. At the last general election, the Conservatives' formal policy was to freeze the amount of money that would be given on grant to local authorities at 0 per cent. for two years. That renders their protestations over the amount that could be given in rebate—

Eric Pickles: Will the Minister give way?

Phil Woolas: The hon. Gentleman has had his chance to put his point of view. My right hon. Friend the Minister of Communities and Local Government quoted the then shadow Chancellor on this point, and that remains on the record.
	I should like to answer some of the points raised in today's debate. I hope hon. Members across the Chamber will join the Government in our campaign to improve the take-up of council tax benefit. I do not doubt that many of the problems that have been mentioned are real ones for Member's constituents—I recognise their credibility in that regard—but they could in many cases be addressed by better take-up of that benefit. My right hon. Friend the Secretary of State for Work and Pensions is working very hard on a comprehensive programme to improve that take-up, particularly among pensioners.
	The policy of the hon. Member for Brent, East (Sarah Teather), who spoke on behalf of the Liberal Democrats, was teased out, not least by the hon. Member for Bournemouth, West (Sir John Butterfill), the Chairman of the pension trustees. I can see that he retains that position—at least, I hope he does because his grasp of finance has clearly not diminished since the election. Frankly, he demolished the Liberal Democrats' case for a comprehensive local income tax, and he addressed very well the questions of how the tax would be assessed, how resource equalisation should be met, how the area cost adjustment should be taken forward, and how the council tax collection rates could be matched with equal collection rates for local income tax.
	The hon. Member for Brent, East did clarify one point. Perhaps inadvertently, she said that she hoped that the balance of funding would shift from 30 per cent. local and 70 per cent. national, as it is now, to 70 per cent. local and 30 per cent. national. My research has quickly shown that that would result in an increase of 10.6p on income tax. That figure is winging its way to the Labour committee rooms in Cheadle even as we speak. The good work force of the Woodford BAE Systems plant in Stockport will now know that not only could they be paying more income tax depending on who they were working alongside, but that it could go up by 10.6 per cent. That is an amazing figure.
	I am delighted to pay tribute to my right hon. Friend the Member for Greenwich and Woolwich (Mr.   Raynsford) who, with typical politeness, has passed me a note apologising for the fact that he cannot be here for the end of the debate. I think it was the hon. Member for Brentwood and Ongar (Mr. Pickles) who urged Members to read my right hon. Friend's articles in the "Municipal Journal". I can tell the hon. Gentleman that, however hard he has been reading them, he has not been reading them half as hard as I have. I congratulate my right hon. Friend on them.
	On a serious point, my right hon. Friend said that the goals of local government finance policy were greater certainty, greater equalisation, incentives for high-quality delivery of local government services, and the sustainability of long-term funding with equal, if not greater, emphasis on expenditure control, both through the Gershonefficiencies—the successes of which my right hon. Friend the Minister of Communities and Local Government has already reported to the House—and through macro-expenditure decisions. In the coming Session, we will debate the three-year settlement that we intend to fulfil to bring about that greater certainty and stability.
	I should like briefly to reply to some of the constituency points raised. I congratulate the hon. Member for Isle of Wight (Mr. Turner) on his new appointment as Conservative spokesperson on voluntary affairs. He had great fun attacking the Liberal Democrats on the Isle of Wight—an easy target, but he had great fun none the less. I must point out to him, however, that his own council has recently received a 5.8 per cent. increase in its grant from central Government, and above-inflation increases for the past eight years running. I invite him to give the money back if he does not want it, but I suspect that there will not be a cheque in the post to my right hon. Friend the Minister of Communities and Local Government.

David Davies: Will the Minister give way?

Phil Woolas: I am sorry, but I shall not be able to do justice to the many intelligent points that have been made if I give way.
	My hon. Friend the Member for Plymouth, Devonport (Alison Seabeck) made a brief but very well informed speech, and I look forward to her being able to use the platform of her membership of the House to give us the benefit of her vast experience and knowledge of local government finance. She has found her voice now, and we look forward very much to benefiting from her advice.
	The hon. Member for Ludlow (Mr. Dunne) made some important points on his constituents' behalf about the fact that some people in his area are on lower incomes. He asked how that could be taken into account if the Lib Dem policy were to be introduced. That was precisely the question asked by the hon. Member for Bournemouth, West and others: how would greater resource equalisation take place if the local income tax were to be genuinely local? That is the paradox that was teased out of the Liberal Democrats' policy.
	The hon. Member for East Dunbartonshire (Jo Swinson) got mixed up when she said that her constituency was the most middle class in Scotland, yet incomes there were under £25,000. I take her point, but she must acknowledge that a couple on average incomes, not on average household earnings, as was suggested, would experience average council tax increases of £600. It is all very well the hon. Lady shaking her head, but if the tax base were based on income rather than property, it would be narrowed, a greater burden would fall on those people paying income tax, who are on the whole members of hard-working families. The Lyons review's remit is to consider whether an element of income tax could be used in balance with the existing property element—[Hon. Members: "Ah!"] This is not news. If hon. Members had read the Municipal Journal—or, indeed, the answers to the parliamentary questions that someone has been writing for them—they would know about this.
	We have requested the Lyons review to consider the balance of funding, building on the work that my right hon. Friend the Member for Greenwich and Woolwich has done, and to make recommendations on how best to reform the tax, taking into account the possible impact of revaluation. It will also assess the case both for providing local authorities with increased flexibility to raise additional revenue and for making the shift in the balance of funding that I have just mentioned, and conduct a thorough analysis of options other than council tax for local authorities to raise supplementary revenue.
	This has been an interesting debate, if only because it has teased out the differences between the two Opposition parties, both of which are clearly concentrating on what is going on in Cheadle rather than on the Lyons review.
	This Government's record in providing a 33 per cent. real-terms increase in resources to local authorities since 1997, providing incentives to councils such as those in Surrey and giving better freedoms to improve services—as the Audit Commission is reporting sustained increases in local services—is one of which we should be proud. We look forward to Sir Michael Lyons's recommendations, and to further debates on this matter.

Question put, That the original words stand part of the Question:—
	The House divided: Ayes 160, Noes 340.

Question accordingly negatived.
	Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments):—
	The House divided: Ayes 287, Noes 183.

Question accordingly agreed to.
	Madam deputy speaker forthwith declared the main Question, as amended, to be agreed to.
	Resolved,
	That this House welcomes the Government's continuing support for local government with its 33 per cent. grant increase since 1997; notes that the average increase in council tax in 2005–06, at 4.1 per cent., is the lowest increase in a decade, the second lowest ever, and lower than the last three council tax settlements for which the previous Government was responsible; welcomes the Government's engagement with councils to facilitate the delivery of 2.5 per cent. annual efficiency gains in local government; and looks forward to the conclusions of Sir Michael Lyons's inquiry as an important contribution to securing a fair and sustainable system of local government finance for the future.'.

Government Regulation

Madam Deputy Speaker: I inform the House that Mr. Speaker has selected the amendment in the name of the Prime Minister.

John Redwood: I beg to move,
	That this House draws attention to the escalating cost of regulation and the increasing number of cases where regulation either achieves nothing or does positive harm to those being regulated; urges the Government to produce a deregulation Bill which goes beyond exhortation to better regulation by repealing unnecessary and burdensome laws and rules; encourages the Government to table a programme for the UK Presidency of lesser and better regulation for the EU as a whole; and asks the Government to bring forward proposals which free professionals in hospitals and schools, which cut the costs of controls over elected local government, and allow business in the UK to compete more successfully against Asian and American competitors.
	In moving this motion, I am a little bemused by the Government's response. I crafted the wording of the motion myself—it is a veritable pussycat of a motion. My right hon. and hon. Friends have been too generous. They have not said, "Are you losing your touch? Where is the tiger in the tail?" It was deliberately couched in words that I thought Her Majesty's Government would welcome. I have heard many fine words from the Prime Minister; even more remarkably, I have heard sometimes similar fine words from the Chancellor of the Exchequer. It appears that, at times, this is one issue on which they agree: they now wish to run a deregulatory Government. In this motion, I give them a little encouragement, assistance and advice. Its wording is surely unexceptionable—if they are as truly committed as some of the readers of their words might expect.
	Our motion
	"urges the Government to produce a deregulation Bill which goes beyond exhortation . . . by repealing unnecessary and burdensome laws".
	Do I take it from the Government's wish to strike our motion from the Order Paper when proceedings conclude that they no longer wish to have a deregulation Bill—there was one in the Gracious Speech—or do they wish to have a deregulation Bill with nothing in it? Are we to have yet more words and no action? Are we to have deregulation in the title, but nothing actually deregulated? That is very new Labour—very fashionable circa 1997—but perhaps not in the spirit of the modern world.
	In the motion, I encourage the Government
	"to table a programme for the UK Presidency of lesser and better regulation for the EU as a whole".
	Surely they can assent to that very modest proposition. I wanted to include a list of all the regulations that we want repealed—[Hon. Members: "Go on."] Well, we might do that later, if time permits. I thought, in order to be in sympathy with the Government, "Better the sinner who repents." I thought they had realised that they passed too much regulation in their first eight years, and that they might agree to table a paper for the EU presidency containing positive proposals for deregulating the EU. But no, I see from the stony faces of the Government Front Benchers that there is no wish to table a paper setting out matters that can be repealed during the British Government's presidency.
	My motion then suggests that the Government
	"bring forward proposals which free professionals in hospitals and schools".
	I accept that such an idea would probably put me on the ultra-Blairite wing of the rather ragged Labour coalition, but surely it is just within the spectrum. We know that the Prime Minister and the Chancellor are locking horns on this issue. The Prime Minister makes the occasional speech, or allows the occasional briefing to be made to the press saying that our professionals in schools and hospitals need more freedoms, hence the ideas behind the early versions of foundation hospitals and special schools. We know that the Chancellor has been sandbagging those and pulling back, but I hope that the Treasury Front-Bench Members—particularly the Chancellor of the Duchy of Lancaster, who may be on the Blairite wing—may be able to tell us tonight that they need to go further in freeing the professionals who are damaged by the red tape, interference and bossiness that have characterised the eight years of this long Labour Government.

Edward Balls: Does the right hon. Gentleman agree that the task of any Government is to strike the right balance between regulation on the one hand and minimum standards on the other? Over the eight years to which he referred, does he agree that the introduction of the national minimum wage was the sort of regulation that he should have supported when he was a Minister in the last Conservative Government?

John Redwood: Of course Governments have to find a balance between necessary regulation and leaving individuals and businesses free enough to go about their daily lives and compete. Our charge against the Government tonight is that that is precisely the balance that the Government have struck incorrectly.

Edward Balls: rose—

John Redwood: The hon. Gentleman has had his chance, and I am merely explaining our position, which is that the Government have regulated too much. That includes too much intrusive labour market regulation. As the hon. Gentleman tempts me on labour market regulation—[Interruption.] The hon. Gentleman really must contain himself. If he is lucky in catching Madam Deputy Speaker's eye later, he will be able to tell the whole House in a proper way exactly what he thinks about labour regulation.
	The Conservative party believes that there is now too much labour regulation in total. We believe that it is vital for the Government to try to hang on to the opt-out from the working time directive. We are angry that the Government Front-Bench Members say that they want to keep the opt-out, while Members of the European Parliament elected on the Labour ticket are busily trying to undermine them and do the opposite. Perhaps if the hon. Member for Normanton (Ed Balls) makes a speech, he will explain the huge contradiction that lies at the heart of the different elected levels of Labour.

Stephen O'Brien: Does my right hon. Friend recall that, despite being asked, former Labour Front Benchers not only refused to condemn the Labour MEPs who repeatedly voted to scrap our valuable opt-out from the working time directive, but urged Conservative MEPs to continue to carry on voting as they were to preserve this country's opt-out? Does my right hon. Friend agree that the Government are in a great muddle over that?

John Redwood: That was an excellent intervention, which shows the hon. Member for Normanton how he should aspire to do better in future. My hon. Friend has put his finger on the crucial point that applies in this interesting matter.
	We have before us tonight a lame Government counter-motion, which is so self-congratulatory and complacent that, even coming from this Government, it really beggars belief. On the eve of our presidency attempt to deregulate the European Union and before the Government launch their deregulation Bill, we are invited in the Government motion to praise them for all the wonderful things they have done in producing better regulation. As I hope to demonstrate to the House, the contrary is the case.
	The Government have greatly burdened British business. Instead of deregulating, according to the British Chambers of Commerce, they have now added a cumulative £40,000 million of extra costs on British business. Before Labour Members say that there were many fine things in all that regulation, let me make it clear that there is one thing worse than having an unregulated job—and that is having no job at all. The danger of what the Government are doing by piling cost on cost, rule on rule, is that it is undermining our competitiveness in the world economy. The Chancellor constantly tells us that China is a great competitive threat, yet he continues to burden our businesses.

John Hutton: rose—

John Redwood: Before the right hon. Gentleman intervenes, he may like to remind the House that 1 million manufacturing jobs have gone since the Chancellor of the Exchequer took over in 1997. Part of the reason for that is the huge burden of regulation.

John Hutton: The right hon. Gentleman talks about people having no jobs. Will he tell the House how many more new jobs there are in the UK economy since the Labour Government took office? Is it not 2 million, of which the vast majority are in the private sector?

John Redwood: A very large number of jobs, especially in the public sector, have been created, but the right hon. Gentleman is wrong to ignore the 1 million manufacturing jobs that have gone. That is very serious. We have had several manufacturing recessions—not overall recessions—during the Government's term of office, and Treasury Ministers are quite wrong to ignore the stresses and strains in manufacturing, as they have for so long in government. It is particularly rich for the Chancellor of the Exchequer, who spent so many days and hours in opposition over the long years, to make claims about the statistics. Figures from the Library show that, from time to time, manufacturing jobs were lost under the last Conservative Government, and the Chancellor always led the public to believe that it would be very different under Labour. What he did not explain was that, in respect of job losses, the difference would be consistent and on a huge scale.

Philip Davies: Only last week, a manufacturing firm, Pennine Fibres, in Denholme—a village that is certainly not in the most affluent part of the area—closed down, costing another 80 jobs in my constituency. Part of the reason why that happens is that there is so little expertise among Government Front Benchers at running a business. They simply do not understand the problems they are causing.

John Redwood: I am grateful to my hon. Friend, and I hope that he will convey the Opposition's sadness about those job losses to those who have suffered them. It is a very good example of a more general problem. As businesses have made the Opposition aware, such problems are the result of Government actions. Today, for example—

Andrew Miller: rose—

John Redwood: I want to make a little progress, but I am a generous man.

Andrew Miller: Before the right hon. Gentleman moves on from manufacturing jobs, may I tell him that, unlike him, I represent a manufacturing constituency? It currently has 1.4 per cent. unemployment. I accept that many manufacturing jobs have been lost, but that has been the pattern throughout the western world. What regulations—not European regulations, but regulations specific to the Government—would he scrap to make us more competitive with countries such as China and India, where many of the jobs have gone? What changes would he make?

John Redwood: I hope to come on to give the Government some advice.

Andrew Miller: The right hon. Gentleman is frightened to respond now.

Madam Deputy Speaker: Order.

John Redwood: The hon. Gentleman wrongly claims from a sedentary position that I am frightened. I am not at all frightened, as I am sure the House knows, and I am about to come on to the regulations that we believe should be repealed in forthcoming Government legislation to make us considerably more competitive.
	Before I finish this general point, it is worth reminding the House that we read from an extensive brief in one of the leading newspapers today that the Government now believe that the total cost of regulation each year is £150 billion. Indeed, the very arresting headline said that regulation now costs everyone more than the Inland Revenue charged us all in income tax. It is a terrifying figure. Those who saw the article will know that it continued by pointing out that a team of about 80 officials are working away over a nine-month period to try to come up with an entirely accurate costing. [Interruption.] I am asked whether the figure is true. I cannot verify it completely tonight, having only seen it this morning, but it seems a pretty good ball park figure and it feels plausible, given that we know that the cumulative total of extra regulation under the Government is £40 billion. They inherited some of that, but made it worse through over-implementation.

Julian Lewis: Perhaps I can throw a little light on just a fraction of that burden. Is my right hon. Friend aware that Hampshire county council, which has consistently been rated excellent without the necessity for all these targets, has supplied me with a list of more than 22 A4 pages listing 400 indices, targets and standards of performance on which it is obliged to report. It uses up resources equivalent to the employment of between six and eight teachers in simply reporting back to the Government on the extent to which it has managed to meet the overwhelming burden of targets imposed on it.

John Redwood: My hon. Friend makes a powerful point. It is one of many examples that Members could provide, and some will, about the huge impact of such regulation and how it diverts people and money from things that are worth doing—in my hon. Friend's case, the good example of providing more teachers—to things that are not worth doing, which amounts to bossiness gone mad.
	The Government churn out more than 4,100 new regulations a year, or 16 for every working day. Our position in the world competitiveness league, as measured by the World Economic Forum, has fallen from fourth when the Government took office, to 11th today. They should be extremely worried by that.
	What could we do? Several straightforward steps could be taken, by a deregulation Bill, which we have been promised, and through the mechanism of the EU presidency, with the UK guiding the agenda with our partners in Europe on the regulations that fall from the Brussels printing presses. After all, the Government are undoubtedly good at one or two things—[Hon. Members: "Hear, hear."] Well, Labour Members will love this. One of those things is making ever more rules and regulations that become the bane of our lives. Some of those regulations miss their target, some hit the wrong targets and some, such as ID cards, are regulations in search of a target, as the Government try to find something that the cards could achieve, having decided that they must tie us up in knots with that legislation.
	There are the regulations that try to protect us when we do not need protecting. The vitamin supplements and food additive regulations are the combined effort of Brussels and this Government. As always under this Government, we have gold-plated those regulations and steamed ahead to implement them this summer. They were of course too sensible to implement them just before the general election. Even this Government realise that the regulations are mightily unpopular, but they will be implemented this summer. That will mean price increases and bans for popular products, affecting millions of people who would like to continue to be able to buy them.
	We read, in briefings from mysterious sources, that the Prime Minister himself is aware of how foolish and unpopular the regulations will be. I praise Carole Caplin, because I understand that she is a sage adviser on that issue and I wish her every success in strengthening the Prime Minister's arm against those regulations. Will the Government promise tonight that they will take counter-proposals to Brussels on that issue? Will they try to sort it out before it grinds its way through the courts? Will they accept tonight that the regulation is unnecessary and that they should use some political capital to get it rescinded in Brussels?
	Then there are those regulations that seem to have no purpose at all. Identity cards started life as a means of stopping illegal immigrants entering the country. When we pointed out that people need a passport to enter the country and that there was no need to require a different document that was available only to those established as British citizens anyway, the Government backed away from that proposal and said that ID cards could be used for crime busting. The quality of criminals is probably higher than the Government reckon, so I suspect that few burglars will take their ID cards with them and drop them on the doormat before they leave the house with the goodies. Short of that happening, it is difficult to see how ID cards would have a huge impact on catching criminals who break into our homes or do damage to our cars. Now, we are told that ID cards will combat identity theft. Apparently, that is a growing and serious crime and the Government think ID cards will combat it when national insurance numbers, passports and other means of identification, including driving licences, cannot. Next week, ID cards may be an essential aid for anyone who has to go to a computer dating agency to sort out their social life.
	Then we have the regulations that are over the top and silly, out of all proportion to the possible risk. We have the risk assessments that are now demanded by some councils before people can undertake sponsored walks. I read about a case a few weeks ago when the council said that the person organising the sponsored walk had to walk the circuit three days in advance and ensure that there were no dangerous rabbit holes. If there were, the organiser had to ensure that everybody on the walk was fully briefed about them before going on the walk. However, nobody told the rabbits, any of which could have dug a dangerous hole between the reconnaissance and the briefing. I wondered whether the briefing would cover that crucial point. Can the Government not see that that is ridiculous and put something in the Bill about proportionality to try to calm down such activity?

David Taylor: I am tempted to suggest that we follow the American example and have a "Warren" commission to investigate the matter. On a serious point, perhaps the right hon. Gentleman is being a little unfair to local government, which often responds to the pressures and constraints of its insurers. It is not necessarily the local authorities that pursue such issues to the point of lunacy.

John Redwood: I think that local authorities are pursuing the Government's agenda, and they must send a new signal.
	Another example is the regulation of school trips. I printed off the website the forms that have to be filled in before children can be taken on a school trip.

Anthony Steen: Is my right hon. Friend aware that the Health and Safety Executive now has some 9,000 officials? They have recommended that the hairbrushes should be withdrawn from the Members' Cloakroom on the basis that we may catch nits or AIDS. They are also of the view that Members should not use kettles in case we burn ourselves, so we all now have hot-water systems. Is my right hon. Friend aware of these ridiculous attitudes, which mean that the HSE affects us even here?

John Redwood: I am grateful to my hon. Friend for a powerful intervention. However, if I were to assert that there were nits in the House, it might be deemed unparliamentary language, so I shall not go any further down that route.
	Nine different forms have to be filled in before a teacher can take children on a school trip, and if a swimming pool visit is involved, another two are added. I shall not read the forms out, but they are bizarre in their detail and complexity. Of course, teachers should need permission and should behave reasonably—I am sure that they do—but they should not need to fill in nine forms. The regulations are becoming an impediment to organising trips and it is easier not to bother.
	Then there are regulations that achieve the opposite of what was intended. The common fisheries policy is perhaps the best and biggest example of that. In the name of conservation, fishermen are told that they have to hurl dead fish back into the sea if they catch the wrong kind of fish. That means that they have to go and catch more of the right kind of fish for people to eat, instead of being able to sell the dead fish and avoid having to rape the seabed further. That is madness. The Government must recognise that and either use some of their influence in Brussels to achieve a fundamental revision of the CFP or repatriate the policy, as the Conservatives wish to do.
	Then there are regulations that miss the target. The Government's policy for tackling road accidents and deaths—an important issue—has been based almost entirely on the control of speed. They have not been deterred by the fact that less than one in 10 of all accidents on the road has speed as a prime or important cause and they have ignored all the evidence that shows that many dangerous accidents occur well below the maximum speed limit at junctions with a conflict of traffic and different types of users on the same road space. Because the policy rested on speed cameras, we had a reversal in the trend for several years and road deaths started going up again. I am pleased that figures for the most recent year show an overall fall, but in the area most dependent on speed cameras—north Wales—the trend in deaths and serious accidents has continued to rise. The Government should consider that and accept that their single over-regulated policy is not working, because it does not tackle the causes of the problem.

Adam Afriyie: Does my right hon. Friend agree that we have a complete imbalance in regulation? On the one hand we have some 5,000 deaths a year on the roads—[Hon. Members: "Three and a half thousand."] I meant approximately. On the other hand, the use of certain mineral and vitamin supplements will be banned even though there are few, if any, recorded cases of anybody dying from their use.

John Redwood: I am grateful for my hon. Friend's support, especially on the vitamin supplements, because there is no problem with them for the regulation to solve.
	Then there are the regulations that seek to make people's lives difficult by being unnecessarily complicated. For example, there are the regulations for people seeking to obtain new pub licences to sell alcohol. The paperwork is enormous. I do not have time to read out any highlights, but there are pages and pages of information. I have identified 24 forms and guidance notes that people will have to wade through to see which is appropriate for their case; everything from feedback forms to premises licences, variation licences, personal licences, club premises certificates, provisional statements and so forth. Anyone trying to run a pub or club now has to wade through 24 items—probably with a lawyer helping them—simply to stay in business. The Government must be extremely worried that so many pubs, clubs and other businesses have not yet applied for premises licences, and that so many people in the trade have not yet applied for personal licences. The deadline is close and there could be chaos in due course, because the Government have made people's lives impossible and caused them so much difficulty.

Stephen O'Brien: Does my right hon. Friend recall that nine months ago the Department for Trade and Industry, the arch-regulator of Departments, had to pulp, at a cost to the taxpayer of about £203,000, the dispute resolution procedure for employers and employees? The procedure made things even more complicated by pretending that it was a one, two or three-step process; in fact there were 13 steps. Even the TUC criticised the regulations, saying that they were too complicated and more likely to cause confusion than to solve workplace problems, and the Federation of Small Businesses condemned them as a potential minefield for small firms. Does my right hon. Friend agree that that is another example of over-complication, missing the target and Government irresponsibility?

John Redwood: It is another fine example and I am grateful to my hon. Friend.

Peter Bottomley: Will my right hon. Friend join me in asking Ministers to tell us whether they have made a survey of the working men's and other voluntary clubs and sports clubs that have been caught up in the drink licensing regime? Amateurs who run such clubs often have to hire the skills of professionals and pay for them, as well as paying more in fees.

John Redwood: That is an extremely good question and I hope that the Minister will respond.
	Much of the regulation of the public sector distorts professional judgments and does damage to the public services that people are trying to run. The education and health targets substitute political priorities for the things that teachers and doctors would do based on their professional judgment. In hospitals, we need to trust the professionals to assess clinical risks and to make their own decisions within the resources available. In the education sector, we need to trust teachers rather more. Instead, a whole army of targets pours forth from Whitehall; there are endless advice notes and guidance notes making it extremely difficult for people to do the job on the ground.
	Local government is tied up in knots by the Government. They sometimes say that they like the idea of more devolved local decision making but in practice they take power to the centre. We would like to see the end of the best value and comprehensive performance regimes, which would save £1,000 million in unnecessary overheads and free our councils to get on with the job and answer more directly to their electors. That should be an important part of any deregulation Bill that comes before the House, and if by any chance it has escaped the Government's attention, I trust that we shall be able to move an amendment to give them the chance to include such provisions, which would be much welcomed by Labour as well as by Conservative and Lib Dem councillors.
	In the case of village halls, many people who would like to work for community purposes find it too daunting owing to the 18 health and safety regulations and the new difficulties over drinks licences. One modest proposal from the village hall movement is to double the number of temporary entertainment events notices that they can hold, to allow alcohol to be used on village hall premises. Without some flexibility and common sense from the Government, village halls face a bleak future. Surely, the Government can give us some hope tonight about some sensible deregulation to help important community facilities run by volunteers.
	Finally in my deregulation list, we come to the Financial Services Authority and City regulation. We learn that the Prime Minister seems to be in disagreement with the Treasury—nothing surprising there, then—on the question of how good the FSA is and whether it is too intrusive. Recently, I saw the City of London corporation's interesting piece of research on the implementation of the money-laundering regulations in the UK, which we had to implement in line with other European partners. Overseas territories outside the EU implemented something similar based on the original G7 agreement. The independent judgment commissioned by the corporation found that it cost twice as much in relation to gross domestic product to implement the regulations in Britain as in Germany. That is a huge over-reaction by Britain. The report goes on to say that the regulations do not make the UK safer from money-laundering than Germany; they are just a costly way of doing it. So, we have a paper chase where people have to take gas bills, electricity bills and passports to their building society just to pay in £100, even though they may have been banking there for many years. Surely something can be done to relieve all that.
	I hope that when the Minister responds he will propose some virile, strong and sensible deregulation. I hope that he will tell us what the Government plan to do during their EU presidency. I hope that he will put reform of the CAP and the common fisheries policy at the top of his list. I hope that he will have something to say about vitamins and food supplements, to bring relief to those who value those products and want to carry on buying them. I hope that he will tell us that there is to be real deregulation in his deregulation Bill and not just a lot of mumbo-jumbo and promises to do better in the future, and I hope that he will announce tonight that the Government have seen enough of the public reaction to ID cards and that they will not go ahead with that massive, expensive and over-the-top regulation in search of a problem.
	Our economy needs less regulation. Our businesses need less regulation. Our people and families need greater freedom. Will the Government give it to us?

John Hutton: I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
	"welcomes the steps the Government is taking to remove unnecessary regulations and rationalise inspection arrangements in both the public and private sectors; acknowledges the additional freedoms given to high performing schools, hospitals and local councils; notes the lead the Government has taken in driving forward the better regulation agenda in Europe; recognises the benefits that well-targeted and proportionate regulation can bring in driving up standards; and further notes that the UK is seen by international observers as a leader in the field of regulatory reform and that the success of the UK economy reflects the approach the Government has taken.".
	I congratulate the right hon. Member for Wokingham (Mr. Redwood) on his speech. I enjoyed his peroration. I do not know whether he will put his hat in the ring for the soon-to-be-declared vacancy in the leadership of his party. He certainly pulled in a decent crowd tonight, so it looks as though he might be in with a shout. All the best to him, because I think it is true to say that all my right hon. and hon. Friends would welcome him as Leader of the Opposition. If he were to inherit that jewel in the British constitution, we might see a little more of him in general elections than we did in the one that just took place.
	I want to say a few words by way of introduction. The right hon. Gentleman referred to the motion. For a fleeting moment, I thought that I, too, could be prepared to lend my support to it. However, I prefer my words to his and I am sure he will understand why. Although he made a good speech, and I congratulate him on that, the problem with it was that there were four fundamental flaws.
	First, the right hon. Gentleman really needed to establish that the UK economy was performing badly because of the Government's approach to regulation. Sadly for him, the facts do not support his arguments. They suggest the opposite. To give him credit—I always want to be fair to him—he certainly did his best; in fact, he tortured the data until they eventually confessed to him. But as we all know—and the lawyers in the House will know better than anyone else—evidence obtained under duress is never admissible to prosecute a case. He will have to find some more supportive evidence.

Edward Balls: Does my right hon. Friend remember speeches made by Conservative Members, when they were in government, about the threat to jobs if a national minimum wage were to be introduced? Does he remember the claims that it would cost between 1.5 million and 2 million jobs? Does not the fact that we have 2 million more jobs, not 1.5 million fewer, show that it is possible to strike a balance between reducing regulation and setting good, sound minimum standards so that people are properly protected at work?

John Hutton: I agree with my hon. Friend. I understand that, only a few months ago, the right hon. Gentleman said that he thought that his observations and calculations about the minimum wage were spot on. They were not—they were completely off the target. There are 2 million new jobs in the UK economy, not 2 million fewer, as he and his hon. Friends predicted.

David Taylor: Did my right hon. Friend hear, as I thought I did, the right hon. Member for Wokingham (Mr. Redwood) cite Germany with some approval towards the end of what passed for a peroration? Research paper 05/53, produced by the economic policy and statistics section of the Library, uses three key figures to show, first, on the output per hour measure, that Germany lags behind the United Kingdom; secondly, on the labour market figure, that the level of employment in Germany is significantly less than in the UK; and, thirdly, on the tax burden, that the UK figure of 37.1 per cent. is significantly below that of Germany. How does he account for those three figures if Germany is doing so well in its deregulated idyll?

John Hutton: I am not sure how the right hon. Gentleman can account for that obvious discrepancy. I want to return to the UK's relative position vis-à-vis the other member states of the European Union. The British economy is certainly outperforming on most of those comparators in the EU.

Brooks Newmark: Will the Minister enlighten us? We keep hearing about how many jobs have been created. I would be interested to know how many of the 1.5 million to 2 million jobs that have been created by the Government are jobs for bureaucrats, and how many of those individuals are regulators?

John Hutton: I think about two thirds of those jobs are in the private sector. As for the additional jobs in the public sector, I do not know what the hon. Gentleman's definition of "bureaucrats" is, but I remember that, when I was in the Department of Health, he and his hon. Friends who sit on the Front Bench used to describe porters, cleaners and other staff who play a very important role in the national health service as "bureaucrats" and "pen-pushers". That is simply not the case. Perhaps he wants to make that point in his own speech. My job is to enlighten him, as he rightly said, and if he will bear with me, I intend to try to.
	The second problem with the right hon. Gentleman's speech is that he needed to show that his own record and that of his party supported the case that he made this evening. Frankly, it does not. His own and the Conservatives' record in government fail to match the rhetoric that he deployed in his speech tonight, and I want to return to that point in a minute.

John Hayes: Even the Minister would not argue that farm businesses have prospered under this Government. Farm businesses have been faced with ever-greater regulation, ranging from fallen stock to controls on livestock markets. Farm incomes have fallen consistently. The number of people in farming has also declined since 1997. What assessment has he made of the impact on farming of the Government's activities and, in particular, regulation since 1997?

John Hutton: We are certainly working to support farming. As for the hon. Gentleman's point about regulation, to be fair him, too, I am sure that he would be prepared to acknowledge that many of the regulations he complains about were introduced to try to sort out the mess that the Conservative Government left on BSE and other such problems. Many of those regulations were introduced by that Government.

John Hayes: Will the Minister give way?

John Hutton: No. The hon. Gentleman has had his go.
	I want to come in a second to the wider issue about sectors, but there is a third fundamental flaw in the right hon. Gentleman's case. He needed to demonstrate that the UK's position in relation to regulatory matters was getting worse vis-à-vis our international competitors. In that respect, too, he had a major problem. There is plenty of evidence from this country and abroad that the UK is making good progress on better regulation—evidence that he conveniently failed to mention. In fact, he overlooked the views of the World Bank, the Organisation for Economic Co-operation and Development, the Heritage Foundation and the International Monetary Fund—all of which he is usually keen to pray in aid. Sadly for him, no such succour or support was available to him from those sources tonight—and again it showed.
	Finally, the right hon. Gentleman completely failed to present a sensible analysis of European regulatory issues. He was again overcome by his visceral hatred for everything that originates from the European Union. In fact, he got his best cheers when he was ranting at his very best about the evils of the European Union. I got the sense that he wanted to rerun some of the arguments that we had during the recent general election. Of course, I am very happy for him to do so: Labour won that election. In rehearsing all the failed policies that the Conservative party put before the British people in May, he has only served to remind Labour Members why the British people chose to return Labour for a record third term in office.

Charles Walker: I think that it was in 2000 or 2001 that the EU had the Lisbon summit, at which those involved pledged to create 20 million new jobs by 2010. Will the Minister explain in his own words why it is so palpably clear to all hon. Members that we will miss that target? In fact, Europe collectively has not created one new job in that period.

John Hutton: I certainly want to deal with Europe in a second, if the hon. Gentleman will bear with me, but we are doing very well, thank you, in this country because of the policies that we are pursuing.

Rob Marris: Does my right hon. Friend agree that much of what the right hon. Member for Wokingham (Mr. Redwood) said was typical Conservative hot air? Does my right hon. Friend know that, on 2 December, the right hon. Member for West Dorset (Mr. Letwin), the then shadow Chancellor, promised me "a very long list" of regulations that a Conservative Government would do away with? He also told me subsequently that the right hon. Member for Wokingham, as shadow Deregulation Minister, would produce that list in January. I am not aware as of tonight that we have seen even a scintilla of that list. We are still waiting for the very long list. It is hot air.

John Hutton: There was a lot of hot air from the right hon. Member for Wokingham. I have seen the list of proposals that he made for the general election, and we know the outcome of that contest. I want to refer to some of the arguments that he made. He rehearsed some of them tonight, particularly his interesting suggestion that we withdraw from the common fisheries policy. I understand that he wants us to pull out of the social chapter as well, and I want to come to the difficulties that any future Conservative Government would have in delivering such a policy.

John Redwood: The Minister is generous, but I should like to take him up on the four allegations that he made. Does he accept that the United States has consistently out-grown this country over the past eight years because it is less tightly regulated and has a lower tax regime? Is he not aware that we are getting closer and closer to the poor performance of the heavily regulated and higher tax regimes on the continent and that we will not hit the Chancellor's forecasts this year?

John Hutton: No, I certainly do not accept the assertion in the latter part of the right hon. Gentleman's question. I accept that there are lessons that this country should learn from other systems and regulatory approaches. Of course we are willing to learn, but I want to come to the wider point because, fundamentally, his speech served a useful purpose in highlighting our different approaches to this issue. I want to explore those differences in a second, if I can get on to them.
	The right hon. Gentleman's central argument related to the health of the British economy and its international competitiveness under this Labour Government. Anyone listening to his remarks would have been left with the impression that our economy was in recession, that Britain was an unattractive place to set up a new business and that a vast army of bureaucrats—to use an expression used by the hon. Member for Braintree (Mr. Newmark)—were out and about strangling enterprise and innovation. But this is 2005, not the 1980s, when millions of people lost their jobs because of Tory boom-and-bust policies. It is not the early 1990s, when hundreds of thousands of people lost their homes because of yet another Tory-inspired recession. Of course, the right hon. Gentleman was a key architect of all those failed policies.

John Redwood: indicated dissent.

John Hutton: That is the history. The right hon. Gentleman indicates that he was not one of the key architects. Of course, he was in the Cabinet until 1995, and until then, he would be prepared to accept that collective responsibility—

John Redwood: indicated dissent.

John Hutton: Oh, the right hon. Gentleman is not even prepared to accept that any more. We have a new constitutional innovation taking form in front of us.

John Redwood: The big decision to join the exchange rate mechanism—which was Labour economic policy, as well as that of the Conservatives—was a mistake. We have said that it was. I was not in the Cabinet when that decision was taken, and the Minister may remember that I resigned from the Government because I did not like the policy being followed.

John Hutton: I accept that that is historical fact, but the right hon. Gentleman cannot escape his wider responsibilities for the failed economic agenda pursued by successive Conservative Governments in which he was a Minister and, as all of us who have had the great privilege to serve in government know, that is a collective responsibility that we must all shoulder. We cannot shake off that responsibility quite as easily as he has tried to do this evening.
	My argument tonight is that, thanks to the policies that we have pursued since we took office, the British economy has enjoyed one of the best climates for business since records began, with sustained economic growth and stability covering the entire period during which we have been in office.

Charles Walker: Will the Minister give way?

John Hutton: No, I am going to make progress. The hon. Gentleman has had a good old go. Perhaps I will give way to him in a second—or not, as the case may be.
	Employment is at a record high; unemployment is at its lowest levels for 30 years; UK unemployment rates are half those for France and Germany; inflation is low; interest rates are at their lowest for 50 years; 4,000 new businesses start up every week; and Britain is the No. 1 country for inward investment into the European Union. Last year saw nearly 40,000 new jobs and a record number of inward investment projects.
	From the picture painted by the right hon. Gentleman, one could be forgiven for thinking that he had been living on a different planet. Many people believe that he does live on a different planet, but I do not want to use that gag. Clearly it will not get me much of a laugh tonight. Sadly for him, his views on the British economy are not even shared by other members of the shadow Cabinet. The Leader of the Opposition said of the British economy only recently:
	"Unemployment is low. Inflation is low. We're growing faster than many other European countries".
	The right hon. and learned Member for Devizes (Mr. Ancram) said last summer:
	"Quite honestly, I go to Germany now and they say to me we wish we had your unemployment".
	The views of the right hon. Member for Wokingham are not even shared by business leaders in Britain. The director general of the CBI said in March this year:
	"We've got the most successful economy in the developed world. It's completely stable, low inflation, interest rates, virtually no unemployment and quality sustainable growth. Now America doesn't have this with its deficit. France hasn't got it with its very high unemployment. Germany hasn't got it with zero growth and high unemployment."
	We have made it clear—this is one area where the right hon. Gentleman and I might agree—that if the progress is to be sustained and if British companies are to remain globally competitive, helping to create new jobs and prosperity here in the UK, Government must, of course, accept their responsibility to strip away the burden of unnecessary regulation on business. I hope that we can agree on that at least. However, I think that there is a huge difference between his approach, which would, for example, compromise standards in the workplace, and the approach that we intend to take.  The measures that he put forward at the election to slash public expenditure through axing support for businesses, such as the scrapping of the Small Business Service, would hurt and not help businesses.
	Consistency in politics is a good thing. To give him credit, the right hon. Gentleman has consistently talked a good fight on this issue, but has he actually delivered? I think not, and I am going to talk about his record in government. He was a very busy body indeed as a Minister in the Department of Trade and Industry. In fact, I have here just some of his handiwork in the 1980s. Here it is—213 separate pages of new statutory burdens all applying to business.
	There are many people who would argue that the regulatory burden actually increased under the previous Conservative Government. Sadly for the right hon. Gentleman, some of them are leading Conservatives. The former Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), referred to the subject of deregulation in The Daily Telegraph shortly after leaving office. I notice that all these reminiscences and insights occur only when Conservatives leave office. The right hon. and learned Gentleman said:
	"We kept trying, we never really succeeded"
	in deregulating. Mr. Michael Portillo, another leading Conservative and a former Treasury Minister, said when he left office that
	"we were rather notable regulators. We passed volumes of new rules and laws interfering with almost every aspect of business and social life."
	Clearly, the right hon. Member for Wokingham comes from the "Do as I say and not as I do" school of political leadership. That is perhaps another reason why he is sitting on the Opposition Benches, but perhaps his biggest difficulty tonight comes in the form of the international evidence:
	"The UK is at the forefront of regulatory reform".
	Those are not my words, but those of the OECD. The UK is frequently shown as at or near the top of countries for the quality of regulation and ease of doing business. A survey by the World Bank published this year placed the UK at the top of the league of major countries in terms of regulatory quality. This year's Heritage Foundation index of economic freedom—something I am fairly sure the right hon. Gentleman normally attaches a great deal of weight to— praised the UK and said that
	"opening a business in the UK is easy."
	It is clear that this Government's approach to regulatory reform has contributed to the success of the British economy and not undermined it as he claimed.

John Redwood: I am grateful to the right hon. Gentleman for allowing me to answer his point. He says that I used the legislative pen, but I seem to remember using it to deregulate the telecoms industry, allowing a large number of new producers to come into the marketplace and creating an extremely successful industry. That was a deregulatory use of the legislative pen and it worked.

John Hutton: I am not disputing that or the contribution that such an approach can make. It makes the case in many ways for the need to regulate sometimes. The candour that the right hon. Gentleman has just displayed is admirable, but it was missing from his earlier presentation to the House. He shakes his head, but we all have a chance to examine his contribution. We shall see what part of his speech made the case for regulation. That was not something that I heard him say.
	The point applies particularly at the EU level. The telecommunications market has been opened up since 1998 because of European law making. I know that the right hon. Gentleman is rightly a strong supporter of the single market, and it has added huge amounts to European GDP and massive amounts to British GDP. Those reforms came about because the EU regulated, and not because it sat back and said, "No, we are not going to regulate." As my hon. Friend the Member for Normanton (Ed Balls) said, there is a balance to be struck in all these things. The balance was absent from the right hon. Gentleman's remarks.
	I am afraid that I am going to have to say to the right hon. Gentleman and his hon. Friends that the House is entitled to treat his remarks tonight with a healthy dose of scepticism. His analysis is flawed, his facts are highly selective, and his prospectus would make matters worse not better. In short, he did not have a sensible strategy at all. Happy-clappy rhetoric on the theme of deregulation may be his stock in trade, and it works well for him among Conservative Members, but it does not add up to a row of beans.
	Since 1997, the Government have focused their approach on better regulation, rather than simply on deregulation. Our view is that effective and targeted regulation can play a vital role in improving standards in public services, correcting market failures, promoting competition, ensuring fairness at work and providing protection for consumers and the environment.

Anthony Steen: I am grateful to the right hon. Gentleman for his tolerance of interventions from both Conservative and Labour Members. I am not making a party political point, because I just want to ask him his view. Does he agree that the problem with the House of Commons is that, every time we sit here, we pass more rules and regulations? They then have to be enforced and, once they are enforced, that has a cost in terms of civil servants and officials. That cost goes on to tax and, more often than not, on to the council tax. Does he agree that, because there is a House of Commons that passes laws, we are going to pass more rules and regulations that have to be enforced and then paid for by the consumer?

John Hutton: We have to balance all the competing pressures. The hon. Gentleman, for whom I have a lot of respect, would I am sure be the first to recognise that there are areas where it is right for the House to pass law. He is not simply saying that we should hang up our boots and go home.

Rob Marris: He is.

John Hutton: The hon. Gentleman clearly is not saying that, but he raises an important wider issue. It is true that there is no such thing as free regulation. If we are going to regulate and impose burdens or costs on business, administrative burdens on citizens or whatever the agenda is, it is essential that we do so in the light of the best possible information about the costs. We have options and choices to make, and citizens and businesses have too. I agree, in part, that we need to improve the way that we discuss in the House and outside with business, citizens' groups and others the options in front of us and the costs of taking particular measures. We have been trying to do that and, to be fair to the hon. Gentleman's Government, they were keen to try to develop that as well.

John Hayes: Will the Minister give way?

John Hutton: If the hon. Gentleman will forgive me, I must now get on. I am conscious that other people wish to speak and, sadly, I am only half way through my speech. I had better make progress.
	It is for some of the reasons that I outlined some time ago that we are not going to apologise to the House or to the British people for introducing the first ever national minimum wage, which has raised the incomes of more than 1 million people in poverty. Nor are we going to say that it was the wrong thing to do to introduce new rights to paid holidays and improved maternity and paternity arrangements. Those are important social advances.
	We are proud that regulation in the UK has helped to secure an excellent health and safety record, with workplace fatalities cut by about two thirds since the 1970s. More employment rights for parents, clearer health warnings on food and tobacco and a cleaner environment are all important and worthy objectives for us to pursue. The argument is not whether we should pursue them, but how.
	When we decide to regulate, we should try to do so proportionately on the basis of evidence and only if the benefits of regulating clearly justify the inevitable costs to which the hon. Member for Totnes referred.
	We are not concerned solely with improving new legislation, but with simplifying existing legislation. We are stripping away regulatory burdens on business whenever possible. For example, we have implemented more than 400 deregulatory measures in the Government's regulatory reform action plan, which was published in December 2003. Good examples of those are measures relating to reform of the fire safety laws, which will save businesses literally hundreds of millions of pounds over the next 10 years.
	We have raised the audit threshold for small businesses, which has exempted nearly 900,000 companies from onerous audit requirements and thus saved them at least £94 million a year. We have provided the highest VAT thresholds in Europe and reduced administrative costs for 500,000 of the smallest companies in the UK as a result. We have also committed ourselves to reducing £1 billion of the regulatory burdens on business arising from Department of Trade and Industry regulations over the lifetime of the DTI's five-year programme. We have reduced the payroll burdens for 1.2 million businesses by paying working tax credit direct to individuals rather than via employers—[Interruption.] The hon. Member for Havant (Mr. Willetts) will get his chance later and I am sure that we all look forward to that.
	We are providing better, clearer information for business on regulatory changes, including, for example, the introduction of new common commencement dates so that all employment law changes now start on two days of the year. Business asked us to do that and we responded positively.
	I hope that I can reach out to the right hon. Member for Wokingham because I accept that the Government should be doing more. We have signalled our intention to do more by accepting the recommendations of the Arculus and Hampton reports, although he did not refer to them in his speech, and by setting out a clear programme for regulatory reform at the European Union level, which he accused us of failing to do.
	Altogether that adds up to the most radical regulatory reform programme under way anywhere in the developed world. It has been welcomed by business leaders, who have expressed their support for the direction of travel that we have set out. The policies are designed to reduce the costs of compliance, to strip away unnecessary and outdated regulation and to simplify the existing body of legislation so that those who are required to observe such laws have a better understanding of what they need to do. They will also address a further concern that business has expressed to us because they will fundamentally change the way in which bodies that are charged with inspection and enforcement set about their work. We will move to a more risk-based approach on regulation and inspection, with fewer inspectorates co-ordinating their work more efficiently and effectively. Their work will be focused on companies with a poor track record of compliance, so companies with a good record will be left to get on and run their businesses.
	The motion calls on the Government to introduce new legislation to give effect to those principles, so I am pleased to be able to remind the right hon. Gentleman that we will do precisely that during this Session. I look forward to him joining us in the Lobby when the Bill is introduced in the new year, but sadly I suspect that that might not happen.
	Taken together, these radical reforms should ensure that each new major regulatory proposal will have to be accompanied by offsetting deregulatory proposals so that the relevant sectors do not experience excessive growth in the cumulative burden of the regulation affecting them. The administrative costs to business, which are important and need to be tackled, owing to the existing stock of regulations will be measured. That is the first step that we must take, although no Government have ever tried to do so, despite the right hon. Gentleman's warm words. Challenging targets must be set for the reduction of those costs. We will rationalise the structure of the independent regulatory bodies to make them more efficient and to spread best practice, such as risk-based inspection. We will reduce the number of regulators that interact with business from the present number of 31 to seven, which will include consolidating several existing regulators into a new consumer and trading standards body.
	In Europe, we will continue to drive forward the better regulation agenda. Better regulation will be a key theme of the UK presidency. On Friday, my right hon. Friends the Secretary of State for Trade and Industry and the Chief Secretary to the Treasury and I met EU Commissioners to set out the UK's priorities for better regulation during our presidency. Over the next six months, we will work hard to ensure that impact assessments are used fully by the institutions—they are not at present—and that Commission impact assessments are given proper consideration by the Council. We want to make progress on substantial measures to simplify existing laws and the Commission will make new proposals on that later in the autumn. We want to ensure that there is effective consultation with stakeholders, especially businesses in the European Union. The Commission should take such consultation into account when drafting new legislative proposals.

John Hayes: I am grateful to the right hon. Gentleman for giving way to me a second time. He did not really answer my question on agriculture and horticulture, so I shall let him have a go at fishing. By implication, he defended the common fisheries policy when he scorned my right hon. Friend the Member for Wokingham (Mr.   Redwood). When he and his colleagues go to Europe, will they tackle the common fisheries policy, which has bizarrely and strangely led to a situation in which we have fewer fish and fishermen than when it was invented? What will he do for Britain's ailing fishing industry and how will he extricate us from the common fisheries policy, which has done so much damage?

John Hutton: I do not doubt that the common fisheries policy, like the common agricultural policy, could benefit from reform, and my right hon. Friend the Secretary of State has been successfully taking that forward. However, the right hon. Member for Wokingham talked about pulling out of the common fisheries policy, which could be done only by holding up one, if not two, fingers to the rest of the European Union. [Interruption.] Conservative Members are nodding because they want to do that, although those who have any sense will not be nodding because this is all about pulling out of the European Union. I think that the hon. Member for South Holland and The Deepings (Mr. Hayes) is nodding, so he clearly wants us to come out, although no doubt other Conservative Members will now sit on their hands because they are not sure whether they should be going down that slippery slope. There are not many sensible Conservative Members left, but if the right hon. and learned Member for Rushcliffe were in the Chamber, I am sure that he would be putting the hon. Member for South Holland and The Deepings to rights much better than I could. That policy is preposterous and daft. It was conjured up to appeal to the populist right-wing media in the run-in to the election, but it once again bombed spectacularly for the Conservatives. I wonder whether they will ever wake up to the fact that their policy agenda of pulling Britain out of the European Union—it barely dares speak its name, but it comes out in these debates every now and again—is a recipe for complete economic and financial disaster.

Adam Afriyie: Is the right hon. Gentleman saying that Britain has no power in the European Union to renegotiate in any way?

John Hutton: The right hon. Member for Wokingham was talking about unilaterally pulling out of the common fisheries policy, but that is not compatible with our treaty of Rome obligations.
	Delivering such changes will require a culture change across the institutions of Europe and it will take time to fully embed such better regulatory principles. However, by the time that we hand over to Austria at the end of this year, we intend to ensure that real progress has been made that will bring demonstrable benefits to European business and citizens.
	The better regulation agenda is by no means confined to the impact of regulations on the private sector. I shall let the Under-Secretary of State for the Cabinet Office, my hon. Friend the Member for East Renfrewshire (Mr. Murphy), deal in his winding-up speech with the points made about the public sector because it is now time for me to sit down. However, it is a travesty to traduce the facts and our policies by suggesting that the public services are now also drowning in a sea of red tape. Public service delivery is improving and the performance of schools and hospitals is getting better. The Government have a proud record of trying to strike the right balance between the things that they must do at the centre and the freedom and responsibility of professionals at the front line. It is worth reflecting on the fact that the first party to introduce central targets in the national health service was none other than our dear old friend the Conservative Government.
	It is clear that this Government are delivering on their pledge to the people to create a competitive and dynamic enterprise economy and world-class public services of which individuals, communities and our country can be proud. All that has not been achieved by compromising health and safety standards, which the proposals of the right hon. Member for Wokingham would do, or by denying working people the right to a minimum wage, as some Conservative Members wish to do. We are trying to get the balance right.
	I recognise that more can always be done to make our regulatory systems more effective. We are trying to do that. I have set out an ambitious programme of regulatory reform for this Parliament. It will better equip us to meet the challenges of the future. It is the right direction for our country to take. That is why I strongly invite my hon. Friends to support the amendment and reject the Opposition motion.

Norman Lamb: There is a contradiction at the heart of the Minister's speech. He spent most of the time talking about the Government's excellent record on regulation and then went on to suggest that they were about to embark on the "most radical reform programme" to deregulate. Proposing such a programme is a tacit admission that there is something wrong.
	The motion is something of a scatter-gun in its approach, ranging from a call to the Government for proposals that free professionals in schools and hospitals, to the case for cutting controls over local government, and to measures that will allow business to compete with rivals in Asia and the US. I can just about see a common thread, and I accept that the motion raises serious issues. The sentiments it expresses are broadly shared by the Liberal Democrats, so we will support it.
	The Government amendment smacks of complacency and endorses an approach by which schools, hospitals and councils have to win freedom from the control of central Government. We reject that approach. We will never break the dependency culture of an overcentralised state in that way. Their approach says, "You do precisely what we in central Government want you to do, and we will then give you strictly controlled limited freedoms." That earned autonomy is not localism as we understand it. We want a much greater, more genuine decentralisation of power.
	On business regulation, it is worth reminding ourselves that a modern, well-functioning market economy depends for its success on the rule of law. The new democracies in eastern Europe, many of which have built remarkably successful economies, had to develop those rules quickly as they escaped from the clutches of communism. Rules are necessary in particular to safeguard and protect employees from unacceptable exploitation. It is worth remembering that Conservative Governments as well as Labour Governments have legislated to outlaw discrimination in the workplace.

Rob Marris: The hon. Gentleman will know from his background what I am talking about. Did he find it extraordinary, as I did, that the right hon. Member for Wokingham (Mr. Redwood) said that there was only one thing worse than having a regulated job and that was having no job at all? In fact, the worst thing of all is to be dead from work because there is no occupational health and safety legislation.

Norman Lamb: The hon. Gentleman reinforces the point that some regulation is necessary to safeguard employees. It was the right hon. Member for Richmond, Yorks (Mr. Hague)—a former leader of theConservative party—who took the Disability Discrimination Act 1995 through Parliament. It imposes a considerable additional regulatory burden on business. In my former life as an employment lawyer, I received plenty of money from businesses seeking advice on how to implement that Conservative legislation, which increased the burden on business. But surely we are not arguing that the framework of that legislation—the protection that it gave to disabled people—is wrong. It may well be possible to simplify the rules for the benefit of both the citizen and the employer, but the case for regulation in that sphere is surely not seriously challenged.

Philip Davies: The hon. Gentleman knows that the 1995 Act asked businesses to make reasonable adjustments, thereby ensuring that small businesses were not disadvantaged by a huge regulatory burden. Does he accept that an awful lot of the regulations that come from the Government apply equally to small and large businesses? Small businesses create the vast majority of employment wealth in the country and are most disadvantaged by all the regulation. It is the small businesses that struggle. The Minister is obsessed with business leaders and dazed by big business all the time.

Norman Lamb: The hon. Gentleman is right to address the concern that small businesses can be heavily burdened by regulation from the Government, but we must remember that an employee's safety is as important if they work for a small business as it is if they work for a large business. Again, it is a matter of striking the right balance. I accept that the "reasonable adjustments" enabled the size and scope of the business to be taken into account, but the extent of guidance provided with the 1995 Act effectively imposed a massive additional burden on businesses of all sizes. I was simply giving an example of a Conservative Government increasing the regulatory burden to give protection to disabled people, which we should all support.

John Hutton: I promise that this is my last contribution to our debate. The hon. Gentleman surprised all the Labour Members in the Chamber by saying that he is going to support the Conservative motion. I checked his manifesto, but I could not find a single reference to regulation, so he is obviously borrowing Conservative policies. Can he confirm that in his new-found support for better regulation he is abandoning the Liberal Democrat plans to introduce dog licences again, which is the most absurd regulatory burden that anyone has devised for a long time?

Rob Marris: Surely, lambs like dog licences.

Norman Lamb: I note the contribution by the hon. Member for Wolverhampton, South-West (Rob Marris), but I confess that I am not a great enthusiast for dog licences.
	Another example of regulation that provides important protection for employees is the minimum wage legislation. The hon. Member for Normanton (Ed   Balls) challenged the right hon. Member for Wokingham (Mr. Redwood) to say whether he supported the minimum wage. We did not receive an answer to that question. Assessments of the total cost of regulation on business, estimated to be about £40 billion by the British Chambers of Commerce, attribute about £13.5 billion to the minimum wage, yet there is now widespread support, even within the Conservative party, for the principle of the minimum wage. Many people would argue that it has improved the labour market and pushed companies higher up the value chain, so it is another example of regulation that protects employees and is regarded as beneficial.
	Rules or regulations are necessary to protect consumers; to ensure that companies do not exploit monopoly positions and to make them behave properly, through prudential financial controls, for example; and to ensure that consumers can make informed choices. Regulation to protect the consumer is going through Parliament at the moment. There is argument about some important details in the Consumer Credit Bill but, even though it increases regulation on business, it is broadly supported by the Conservative party as well as by the Liberal Democrats. Finally, rules and regulations are necessary to protect the environment. The market does not understand the imperative of tackling global warming, so a mixture of regulation and other market-based mechanisms such as emissions trading are necessary to change corporate behaviour.
	We should avoid the temptation to condemn all regulations or rules. Some Tories rail against the very idea of business regulation, but our attack must be targeted on excessive regulation or regulation that is disproportionate to the mischief or problem; well-intentioned regulation that has unintended consequences; and regulation that addresses an important issue in a bureaucratic and burdensome way. For example, to a provide a framework of protection against various forms of discrimination, this country, with the help of the European Union—I am sure the right hon. Member for Wokingham would agree—has developed myriad rules on discrimination that are so detailed and complex that they fail adequately to protect the citizen. They are quite impenetrable to many people, and leave most businesses unaware of the extent of their responsibilities.
	The answer is a single equality Act, as proposed by the Liberal Democrat peer Lord Lester. That reform would be a significant deregulatory measure, and it is frustrating that the Government have not acted on the proposal. The case for it is overwhelming: we could remove a vast quantity of regulation and rules on discrimination and replace them with a much simpler framework. It is not just regulation that we need to address: there is a great danger of regarding deregulation as a panacea. Indeed, the motion concludes that deregulation and better regulation would
	"allow business in the UK to compete more successfully against Asian and American competitors."
	They could, but that is not enough on its own. The recent unanimous report of the Trade and Industry Committee concluded that
	"the main challenges that the UK economy faces are not exclusively matters of regulation or deregulation, but in areas . . . including skills and training, R and D, and technology transfer, the supply of capital for investment, and narrowing the productivity gap with our competitors."
	None of that detracts from the fact that the regulatory burden has grown dramatically and excessively, and that that trend goes back well before 1997.
	The Government are right to point out in their amendment that in some respects the UK is seen as a leader in regulatory reform, certainly in the European context. The United States started a much more systematic analysis of Government regulation back in 1993 under President Clinton, but, ahead of much of the European field, with the clear exception of Holland, the UK has developed the concept of the regulatory impact assessment, with which the Minister dealt in his speech. The problem is that in our view it does not work as intended. I list some of the criticisms.
	First, the Government have all too often failed to follow their own rules when preparing regulatory impact assessments. Secondly, the RIA is carried out by the Department that seeks to implement the regulation. There is a danger that it will simply be self-serving. No outside body reviews the RIA once it is prepared. The National Audit Office may look at it after the event, but there is no independence in the process.
	Thirdly, by the time the RIA is carried out, the momentum to introduce the measure is often unstoppable. It happens too late in the process. Are we ever told, for example, that an RIA has resulted in the decision not to proceed with a new regulation? One suspicion is that that never happens. I would be interested to hear from the Minister whether there are ever occasions when RIAs reach a conclusion that a regulation should not proceed. We are never made aware of that.
	Fourthly, the assessment of impact on business is often insufficiently robust and there is no standard process for revisiting the regulation once it has been in force for a time to measure its actual impact and to compare the reality with what had been predicted in the original RIA. Fifthly, there is insufficient transparency in the process. It is impossible to determine how the costing has worked and who has been consulted. Sixthly, and perhaps above all else, there has not been a sufficient cultural shift in Whitehall Departments. The pressure is still to regulate, rather than to make a genuine attempt to examine all other options for resolving a problem without resorting to regulation.
	I suggest the following steps to help change the culture and slow the pace of new regulation. To start with, there should be some independence in the regulatory impact assessment process. It could involve an independent body conducting the assessment, or an independent assessment panel of suitably qualified individuals looking at the RIA once it had been prepared. The panel's conclusion would be available to Parliament before it considered the measure. This element of independence would focus the minds of civil servants and would be likely to act as a constraint on the flow of new regulation. It is an approach pioneered in the Netherlands with marked success.
	Secondly, there must be much more effective assessment of impact. That would necessarily involve industry bodies more effectively in determining the likely cost of regulating, and also in examining whether there are alternative ways to proceed that would be more cost effective. Thirdly, there must be transparency in the process. Information, including the method of calculating the impact and all other background material, should be routinely published on the Department's website.
	Fourthly, there must be a post-implementation assessment of each new regulation, perhaps three years after enactment. That could be carried out by the independent assessment panel that I proposed.
	Finally, each regulation affecting business should include a sunset clause, which would force a further assessment of its worth. If the Government wanted the regulation to survive, they would have to justify it again to Parliament.
	So far I have dealt only with Whitehall. The process at European Union level is less advanced and even more disturbing. The flow of new regulations, directives and other EU decisions has grown massively over the years, peaking in 1998 at 3,901—more than 10 a day. By 2003, the number had declined somewhat, but still it reached more than 3,400. We now have a European RIA of new regulations but it is rightly criticised for lack of rigour. A survey of a sample of EIAs, as they have become known, found that only half had quantified both costs and benefits. Too often they are nothing more than a flimsy paper exercise. The British Chambers of Commerce has found in a sample that 10 out of 12 UK EIAs carried out in respect of EU regulations were published after the regulations had come into force, thereby negating the entire purpose of the assessment.
	All the proposals that I have put forward for the UK could be applied equally to the EU. I welcome the fact that the Cabinet Office has apparently today reasserted the Government's commitment to deregulation as a priority for the UK's EU presidency. Interestingly, it was reported in the Financial Times this morning that Ministers will advocate a new independent body to scrutinise proposals for regulation. If independence is appropriate for the EU, presumably it is appropriate also at national level.
	There is an added dimension to the European level of regulation that merits consideration. Tim Ambler of the London Business School has highlighted that directives provide scope for interpretation at national level. Each member state can implement a directive in its own way. The process provides the opportunity for so-called gold-plating.
	Logic suggests that if the measure is required at EU level, it should be implemented uniformly throughout the single market. That suggests that it should be implemented in a regulation that applies directly and does not involve any further regulation at national level, or it should be left to member states to decide whether to legislate. Going down the directive route inevitably involves legislation both at European level and member state level, leaving confusion throughout the EU and also leaving businesses and individuals unclear as to their rights. Tim Ambler highlights the risk of legislating at multiple levels of government, which ensures that there is a lack of clarity. That leaves the citizen entirely confused.
	As well as being far more robust in our examination of regulatory proposals, we must seek to reduce existing regulation. Both at national and European levels there is a need to tackle the vast accumulation of regulation. There must be a rigorous approach to reducing and simplifying the burden, and the Dutch have again taken the lead. The Government have stated their objectives and they will be judged against their rhetoric. One approach that is worth considering is the one in, one out discipline. Every time a Department seeks to impose a new regulation, it would have to propose the cull of an existing one. The concept that the regulatory burden has grown large enough and that something must give to facilitate the introduction of a new regulation is logical and attractive.
	The Government have committed themselves to the rationalisation of compliance and of the enforcement regime. They talk about fewer inspections, especially where companies have a good record of compliance. If it happens, it should be welcomed. So far, delivery has not matched rhetoric. The burden on small businesses must be considered much further. The idea proposed that they should deal with only one official merits consideration.
	The motion deals with the burden on local government, schools and hospitals. Just as companies are more likely to prosper if they have the burden of excessive centrally imposed regulation removed from them so local government could come alive again if it were liberated from central controls. The UK tops the league table for the proportion of taxes that are raised centrally, and that is combined with a denial of local autonomy.
	Last year, the Treasury Committee visited North Carolina. We were examining how productivity had been improved in that state. Inevitably, education and training were central to the strategy that had been pursued. That state decided that it wanted to embark on a massive rebuilding programme to upgrade schools and colleges, put a proposition on the ballot paper for the state elections, and won overwhelming approval for the issue of a bond to raise the money.
	No such autonomy is available in this country. We have developed a dependency culture that enables local government always to blame central Government whenever it runs out of cash or is prevented from doing something. [Interruption.] The hon. Member for Wolverhampton, South-West should listen instead of sniping at the Liberal Democrats.

Rob Marris: Every Liberal Democrat local government "Focus" leaflet that I have seen—although I have by no means seen them all—takes a swing at central Government for insufficient funding.

Norman Lamb: I am pleased that the hon. Gentleman endorses the point I am making.
	It is surely much better to make local government genuinely more accountable to its electorate. Under our system, whereby central Government controls everything, there is a dependency culture that enables local councils and local politicians to blame central Government for everything. If we had a system with genuine local autonomy and accountability, the buck would stop with the local authority and the system would be much better for it.
	The same principles apply to health and education services, which are constantly dragged down by a centralised Whitehall target-setting agenda whereby the instinct is to micro-manage everything from London. I was struck by a comment from a hospital manager who told me that he and his colleagues not only have to account to the Department of Health through all the performance measures that are imposed on them, but have the Prime Minister's delivery unit on their back as well. Two departments of central Government are looking at every move they make.
	The common thread running through all this is the emergence of a state where the centre seeks to control everything. The intention is often, but not always, laudable—identity cards being one example where the intention is clearly not laudable. However, the law of unintended consequences means that whether for entrepreneurs, local authorities, schools or hospitals, the spirit is too often dulled or destroyed by an overbearing state.

Several hon. Members: rose—

Mr. Deputy Speaker: Order. I remind the House that Mr. Speaker has placed a 12-minute limit on Back-Bench speeches. There is not a lot of time left, and hon. Members will help each other if they are able to keep comfortably within that limit.

Gordon Banks: I was interested to hear the right hon. Member for Wokingham (Mr. Redwood) give an analysis of local authority administration. I should like to draw his and the House's attention to the activities of two neighbouring councils in Scotland. Perth and Kinross council, which strangely enough is controlled by the Liberal Democrats and the Scottish National party, sought public liability insurance for a G8 alternatives demonstration this week, only to withdraw the requirement two weeks later. Stirling council, which is Labour controlled, agreed the site for a G8 alternatives eco-village with the appropriate level of guarantees but without the need to back-pedal from a situation that it had itself created. That is a good comparative example of how councils are in control of making their own decisions without intervention from central Government.
	I welcome the Government's commitment to dealing with the burden of unnecessary regulation on businesses and public sector providers. I must declare an interest, as stated in the Register, in that I run a building supplies business in Scotland. Coming to this House with a business background, I understand that unnecessary regulation on business and public services can hold back enterprise and stifle ambition. The burden of paperwork ensuring that companies conform to regulations from Westminster and Brussels can take a considerable time to complete and, as such, has an impact on the time management of employees and directors alike.
	This is not, however, a new phenomenon. Having been involved in the building trade for more than 25 years, I have noted that red tape has always placed a burden on companies and employees. The Government's ambitions here and now represent a real attempt to change the culture that exists within Government, which often creates needless administrative processes for companies and sometimes holds back the development of smaller companies. The Government's desire to remove unnecessary regulations while maintaining the benefits of many existing regulations makes their aim stand out from the Opposition's.Good regulation has provided protection for employees and consumers. It has ensured that standards are kept high and that health and safety is maintained. As we heard earlier, the UK is recognised world wide as a leader in regulatory reform. As our economic prosperity shows, we can ensure that those reforms add to our international standing.
	Good regulation can, often does and should always impact positively on the business sector, leading to improved working environments, growing output and improved financial performance. The reason for better regulation is clear. We will experience not only the benefits of freeing up employee time but financial benefits for businesses. I am sure that many of my hon. Friends have seen the estimation that by implementing changes to such regulations we can increase British prosperity and productivity by approximately £20 billion.
	Similarly, the removal of some regulations and paperwork in the public services will free up time for public service employees, allowing them to focus more on the provision of their specific service and improve efficiency. However, that must neither be done through the removal of standards by simply erasing the regulations as Conservative Members wish, nor by compromising key reforms such as increased paid holiday for part-time workers, increased maternity and paternity rights or the minimum wage, which Conservative Members found they did not have the time to support when it was introduced.
	A different approach to inspection is also required. A large proportion of the forms that businesses must complete results from the many inspections to which they are subject. Adapting the process whereby inspections are made so that companies do not face unnecessary repeat inspections will cut down the burden that that places not only on companies but on the bodies conducting the inspections. That will free up time for inspectorates, allowing them the opportunity to perform more thorough inspections and potentially allowing an opportunity to review the necessity for some inspectorates.

Mark Lancaster: Does the hon. Gentleman agree that there is an imbalance in some Departments between authority and accountability? For example, let us consider the inspection regime of the Health and Safety Executive, which can rightly force a change in working practice in a business. However, if an accident subsequently occurs, the burden falls on the employer and the HSE will walk away, even though it forced the change in working practice.

Gordon Banks: I shall deal with the effect in various Departments shortly.
	Adapting the process whereby inspections are made so that companies do not face unnecessary repeat inspections will free up time. My right hon. Friend the Chancellor clearly demonstrated his commitment in the Budget, and Departments will be challenged to simplify and reduce regulations. The move to a more intelligent, risk-based approach will be good for most businesses, which will experience a lightening of their load. By reducing the number of inspectors who deal with business from 29 to seven and those who deal with public services from 11 to four, businesses, the public sector and the inspectorates will all become more efficient.We are beginning to experience improvements in Departments; for example, the Department for Environment, Food and Rural Affairs has committed itself to reducing its administrative burden by 25 per cent. Other Departments are working on similar plans.
	Cutting the amount of inspections could be complemented by discussions in the EU on the need for better regulation both in and from the EU. I am confident that the Government's ministerial team will deal with that European burden. I hope that they will perhaps use the UK presidency to push for an agenda for change on that.
	I understand that there are plans to introduce a Bill on better regulation and that it will try to remove outdated and unnecessary legislation. At the same time, we must introduce tougher penalties for businesses that do not comply with the remaining regulations. Removing the burden of some red tape will assist some companies, but it may also encourage others to risk non-compliance. That should carry a penalty that is sufficiently severe to deter the said business from taking such avoiding action.
	I applaud the Government's aim to reduce regulations, but I would ask the ministerial team involved to provide a mechanism whereby those businesses that wish to comply can get easier access to a basic level of information, possibly even sector by sector and through developing technologies. That would make it easier for businesses, especially small businesses, to comply. We want our business leaders to develop their businesses and to be able to face the challenges of an ever-changing world. The Government's proposals are very useful in that regard, but we can always do more to help, and I hope that the Ministers will feel able to include such measures in any legislation they introduce.

Henry Bellingham: First, I should like to declare my interests, which are in the register.
	The hon. Member for Ochil and South Perthshire (Gordon Banks) is obviously a worthy successor to his predecessor, who was a superb Chairman of the Trade and Industry Committee. The hon. Gentleman's business interests and experience will stand him in good stead in following in the footsteps of his predecessor, who is now a Member of the other place. We look forward to hearing from the hon. Gentleman again on matters to do with industry, business and regulation.
	I concluded, as I am sure many of my hon. colleagues did, that the speech made by the Minister of Communities and Local Government was extremely complacent. He flagged up the areas in which the economy was doing well—yes, we do have low unemployment and reasonable economic growth—but he said nothing about the loss of manufacturing jobs when he was challenged to do so by my right hon. Friend the Member for Wokingham (Mr. Redwood). He did not say anything about the balance of payments, the record UK trade deficit, or the fall in our productivity. Nor did he say anything about the offshoring of manufacturing jobs. He did not mention, for example, the fact that Sony has recently announced that it is to move a lot of its jobs in Bridgend offshore from this country.
	The Minister did not say very much about our loss of competitive position, which is very serious indeed. My right hon. Friend the Member for Wokingham mentioned the fact that we have fallen in the World Economic Forum's league rankings from fourth position in 1998 to 14th position today. That is very worrying indeed. The Minister said that we were doing better than countries such as France, Spain and Italy, but they are not even in the first 20 in those rankings. The point is that we are way behind the USA, Singapore, Australia, Norway, Japan and some of the smaller European countries.

Norman Lamb: Will the hon. Gentleman give way?

Henry Bellingham: No, I will not; time is restricted.
	The Minister should take on board the fact that the overall picture is far from rosy. The problem is that we are undermining many of the important supply-side reforms that took place in the 1980s and 1990s. That matters, and we have fallen in the league of world competitive rankings entirely as a result of excessive regulation and red tape. That observation is backed up by every independent commentator, including the CBI, the Institute of Directors, the Engineering Employers Federation, the British Chambers of Commerce, the Federation of Small Businesses and the Forum of Private Business. When describing the level of regulation that had been put on business, my right hon. Friend the Member for Wokingham mentioned a figure of £40 billion-plus since 1998. In fact, the CBI's figures are worse, because they show that the annual level of increase is £6 billion. That obviously works out at an even more worrying figure.
	In the few brief moments available to me, I should like to examine some of the drivers of regulation, and to work out what we could do to reverse them. One of the main drivers is undoubtedly the European Union, which is responsible for roughly 40 per cent. of all the regulations affecting industry and business in this country. As my right hon. Friend pointed out, we should not just sit back and take every one of those EU directives on the chin. When the Conservatives were in government, we had an opt-out from the social chapter.
	The Prime Minister may talk about the deficiencies of the European business and social model, rail against some of the directives coming down the track, and complain bitterly about the agency workers directive, but we are completely powerless to do anything about it. We can argue our corner, but because we are signed up to the social chapter, we have no right of veto—we have to implement whatever the directives require. We have no flexibility whatever. Therefore what the Prime Minister says about the deficiencies of the EU social model, and the need to move closer to the American model with a free market economy, will mean nothing unless we can get back an opt-out from the social chapter. It was claimed that that was impossible, that we would have to renegotiate various treaties and use our bargaining position, and that it would be completely unfeasible. How negative is that? If we go in with that attitude, of course we will not make progress. The Government have made it clear that they are not interested in changing anything for the better.
	The second driver of excess regulation, as I see it, is gold-plating—that peculiar British habit and tradition of extending the scope of directives, not taking advantage of derogations that might be on offer, and providing much tougher sanctions than demanded by the directive. There are many examples of that, but I will give just one, which I examined when I dealt with employment matters from the Front Bench in the previous Parliament—the EU part-time workers regulations, implemented through a statutory instrument in 2000. The EU directive stated that part-time workers must have the same rights as full-time employees, but left member states to decide how to implement the requirement. The UK regulations, however, included a provision that UK firms must issue any part-time employee who queried their terms and conditions with a written statement setting out all the reasons within 14 days—a much more onerous provision than in any other EU country. No wonder the British Chambers of Commerce argued that that was a classic case of gold-plating. Until we get a grip of this peculiar UK phenomenon, we will not significantly improve the situation in terms of excessive regulations.
	Obviously, the third driver is Her Majesty's Government. All Opposition Members know that they have interfered and deliberately over-regulated. For example, Employment Act after Employment Act has put more burdens on business, escalating central control and intervening the whole time. In many areas, the Government have gratuitously and unnecessarily placed extra burdens on business.
	That goes hand in hand with what I have described asthe fourth driver of excessive regulation—administrative creep, or the extent to which government has grown in size. As my hon. Friend the Member for Havant (Mr. Willetts) has pointed out many times, the bigger government becomes, the greater the propensity to regulate and interfere. I find the sheer extent of that growth very worrying and disturbing. One of the statistics that the Chancellor of the Duchy of Lancaster did not mention was the change in central Government employment since 1997. He talked about how well the economy was going, and how unemployment had fallen, but he did not mention the 1 million job losses in manufacturing. Obviously, they have been compensated for by the huge increase in jobs in central Government. One would have hoped that Britain would be at the forefront of trying to drive forward wealth creation, but while central Government employment has fallen by roughly 8 per cent. in countries such as France, Germany, Sweden, New Zealand and Italy since 1997, the UK lies in second place in the Organisation for Economic Co-operation and Development world chart, with an increase of 8 per cent. Of course we need more doctors, teachers and nurses, but we do not need all these people interfering.
	One example of that is the Department of Trade and Industry. Many of the great industries have been transferred out of the state sector into the private sector. One would have expected the DTI to become smaller. Far from it: its budget has risen from £2.7 billion in 1998 to £5.2 billion in 2005–06, and the number of civil servants and other employees has almost doubled.
	Nothing that we heard from the Minister will do anything about those drivers. We heard nothing from him about how the compensation culture will be dealt with. We heard nothing about the huge extra burden imposed on businesses by the increase in insurance premiums, and nothing about the time and effort that businesses must now devote to employment tribunals in an attempt to combat that compensation culture. Unless we can change attitudes in Whitehall and reverse the "big government" process which means more interference and more regulation, we will not be serious about deregulation, wealth creation and encouraging entrepreneurs.
	In today's Daily Telegraph, the new Minister for Industry and the Regions, the right hon. Member for Cardiff, South and Penarth (Alun Michael)—he will deal with small businesses and enterprise—went on about wealth creation and the importance of helping small businesses. Unless we have a serious policy to reverse the drivers of regulation, and unless we give serious consideration to measures such as those in my party's manifesto, which refers to a really tough, imaginative deregulation Bill, everything that the Government say—although it may be well intentioned and entirely genuine—will have very little impact on the ground.
	I wait with bated breath to hear the Minister's winding-up speech, which I hope will give us some hope that the Government will act. Judging by what his colleague said earlier, however, I am not particularly optimistic.

Mary Creagh: Before I came to the House, I was fortunate enough to do a job that I loved. I was a lecturer at Cranfield School of Management. Over the past seven years I have helped scores of my students to start their own businesses, and have helped scores of entrepreneurs to enable their businesses to grow profitably. The businesses range from Moonpig.com, an online greetings card business, to Real Burger World, a slow-food burger company in south London which I heartily recommend to Members. I also advised many companies whose representatives took advantage of Cranfield's business growth programme. When I talked to those people I heard many complaints about cash flow, about late payments from suppliers and customers, and about the difficulty of growing a business while keeping it profitable.
	Better regulation was not the subject of the biggest or the most important complaints. My students came from all over the world. Many chose to start their businesses in Britain rather than in their home countries because our barriers to start-up are among the lowest in the world. Being an academic, I did not rely on my own words. I showed the students reports from the Organisation for Economic Co-operation and Development to prove my point that our low-regulation environment would prove helpful to them.
	Britain is also attractive to companies starting their businesses because of our relatively well-developed venture capital markets, both the private-equity and the more formal markets. It is time-consuming for companies to find private equity, but it is easier here than it is in other European countries. Our banking sector is more competitive than those in other countries. Owner-managers often told me that what mattered most to their businesses was a sympathetic bank manager—or finding one after disposing of an unsympathetic bank manager.
	We have heard a good deal about small businesses today. They are the engines of innovation in our economy. When I worked in a high-tech university, I saw how the teaching company scheme—later rebadged as the knowledge transfer partnerships—enabled universities and businesses to spin out new technologies and help the country to innovate. Under this Labour Government, the science budget for biotechnology and nanotechnology is nearly £3 billion, compared with a meagre £1.3 billion in 1997.
	Fostering an enterprise culture is vital to Britain's economy. In my constituency we have a healthy mix of large and small companies, and unemployment is at a record low at 2.5 per cent. Businesses are enjoying business rate relief. Rural businesses are enjoying rate relief of up to 100 per cent. in villages containing fewer than 3,000 people. Many of them are enjoying 100 per cent. tax write-offs for their investment in new technologies, in research and development and in computers.
	The enterprise culture that we have heard so much about is flourishing—at the moment—but regulatory reform should always remain a goal of any Government. Such reform should have clear public policy goals. It should allow small businesses to compete effectively against large companies, and allow them to compete for public contracts; we in this country have not always been successful in that regard. Such reform should also ensure that smaller and larger companies have equal access to finance. However, it should also remember that business takes place in society; that the environment should not be polluted; that fly-tipping instead of paying for waste disposal is a crime; that employees should have training in machinery and health and safety; and that no construction project or "dream building" is worth the life of a worker who is killed or crushed by machinery. One person's "regulation" is another's health and safety.
	Regulatory reform in the UK must take into account three issues. First, we must ensure that regulations coming from the EU do not have a disproportionate impact on our small businesses, an issue about which we have heard a lot this evening. I am delighted that one of our priorities for the EU presidency is to lead the way on better regulation, and to ensure that fewer regulations come from Brussels. We have been successful in taking that message to other European countries, and there is a willingness to learn and to share our experience. But I also welcome legislation from Europe that helps our small businesses to compete better in a global marketplace. In an increasingly integrated world, we must ensure that our small businesses can grow internationally, as well as nationally.
	The owner-manager of one of the small businesses that I used to deal with ran a container business. A change in EU regulation meant that for a short time, his was one of the few companies in the UK—indeed, in Europe—producing EU-compliant oil drums. That was clearly wonderful news for his business, because for a short while he was able to enjoy that rare thing that most businesses dream of—a monopoly. In our efforts to make the best, most environmentally friendly products in Europe, legislation can in fact act as a market opportunity, in which our world-class businesses can compete and thrive. Indeed, the right hon. Member for Wokingham (Mr. Redwood) told us how telecoms benefited from the opening up of EU markets in 1998.
	Secondly, if we are to achieve better regulation, regulatory reform must try to simplify existing regulation. The March 2005 Budget included a radical overhaul of regulation. We have heard about the twin-track process—one in, one out—whereby any legislation that imposes regulation is accompanied by a compensatory measure to simplify legislation.
	Thirdly, we must reduce the burden of inspection across all services and businesses, public and private. I am very glad that our excellent councils are being relieved of some of the comprehensive performance assessment inspections to which they have been subjected. A risk-based approach to inspection means lighter inspection for businesses with a proven track record, and a heavier regime for those that continually fail to meet social, environmental or regulatory standards. That is not bad for business; it is good for society and it is good for good businesses.
	Let me return to the companies that I spoke to in my seven years helping people to start their own businesses. They all told me that the most important thing that a Government can do for them is to keep interest rates low and to keep their borrowings down. They remembered the banks knocking on their doors in 1991, when interest rates hit 10 per cent. and peaked at 15 per cent. They remembered 1992 to 1996, when 1,000 businesses a week went bust. They do not want a return to Tory boom and bust, to
	"15 per cent. interest rates, sky-high mortgage arrears, negative equity, bankruptcies, entrepreneurs giving up the ghost on private-run companies and a lot of people losing their jobs. I don't think there was a family in the country that didn't experience at least one of those anguishes."
	So said the right hon. Member for Wokingham in a speech to the Bow Group on 26 October 2004. Those companies want an educated work force. They want to give something back to the society that buys their products and services.
	Let us put regulation in its place; it serves us, not the other way round. Small businesses are run by human beings with families who understand the pressures of the modern world. When the Government were introducing maternity rights, one owner-manager said to me, "All this talk about not employing pregnant women—I'd hire someone who was nine months' pregnant if she was the best person for the job." Small business owners live in the real world, and they want real-world solutions. They know that without maternity leave and without women having babies, they would have no customers for tomorrow's products and services, and no staff to make or market them.
	There was much talk from Conservative Members to the effect that the minimum wage would cost British jobs, but they were wrong. Does giving new fathers two weeks off to learn how to change their baby's nappy mean the end of the business in which they work? Not if the business is any good. Does giving employees the right to take four weeks' paid holiday mean that companies will plunge into the red? Not if the business is any good. This is not bossiness gone mad, just good business.
	I want better regulation and smarter regulation. Instead of seeing it as an added layer of bureaucracy, we should see it as a smarter way of working. The Government are trying and succeeding on deregulation. We have gone beyond exhortation. I welcome the measures that we have taken to boost this country's economy and productivity and to create a healthy, thriving small business sector.

Brooks Newmark: I would like to thank the hon. Member for Wakefield (Mary Creagh) for her contribution. I felt that, with her experience of small business, she made some very sensible points, particularly about the need to strike a fair balance with regulation. Nevertheless, I would like to remind Labour Members of their 1997 manifesto commitment:
	"We will not impose burdensome regulations on businesses, because we understand that successful businesses must keep costs down."
	As we have heard from many Members this evening, earlier this year the British Chambers of Commerce published its latest findings, showing that the costs of new business regulations introduced since 1997 are now approaching £40 billion. That figure actually excludes the national minimum wage. It does not include it, as the hon. Member for North Norfolk (Norman Lamb) claimed. Indeed, the CBI has said:
	"The Government must stem the red tape tide and make the regulatory environment more business-friendly. There is a pressing need for regulations to be cut-back and simplified."
	Nevertheless, the Government announced back in August 1998 that no policy proposal that had an impact on business, charities or voluntary bodies should be considered by Ministers without a regulatory impact assessment first being carried out.
	While regulatory impact assessments are in theory required to estimate the costs and benefits of regulation, there is no indication in the Cabinet Office guidance notes that proposed regulations should be aborted if, as is increasingly the case, their costs to business are found to outweigh their benefits. Indeed, the British Chambers of Commerce found that 23 per cent. of the RIAs it sampled in 2002–03 did not even attempt to quantify costs to business, and that 71 per cent. did not quantify the benefits.
	Another problem is that the scope of cost-benefit analysis carried out in regulatory impact assessments is drawn extremely widely. The former Cabinet Office Minister, now the Minister for Europe said that an RIA procedure
	"requires the responsible Minister to certify that he or she is satisfied that the benefits of the proposed measure justify its costs. The Minister will consider the full range of benefits arising from the measure, including social, environmental and economic".—[Official Report, 22 July 2004; Vol. 424, c. 515W.]
	However, there is no objective way of measuring social or environmental benefit. RIAs can easily be reduced to subjective impressions. Furthermore, there is little scrutiny of the extent to which the particular costs and benefits predicted by officials prove accurate, once regulation actually comes into force.
	Professor Ambler and Francis Chittenden, who studied 165 of the 197 RIAs published between July 2002 and June 2003, found that
	"in many cases completion of RIAs remains a bureaucratic task to be despatched with as little effort as possible."
	That impression was reinforced by a Government special adviser, who told the Social Market Foundation's regulatory best practice group:
	"It would not be far off the truth to say that"
	the Minister
	"would hardly remember having seen"
	an RIA.
	"They have never made any difference to our work—we've got commitments to discharge and we're not going to let procedure get in our way."
	So far, approximately 1,100 regulatory impact assessments have been issued since their introduction in 1998. In his study on behalf of the British Chambers of Commerce, Professor Ambler notes that in:
	"many cases regulation is transferring government's administrative and social policy onto industry. In other words, whether intentionally or not, many regulations act as a form of taxation."
	A good example of that may be seen from the current proposal for the Inland Revenue to take on the role of calculating and paying statutory maternity pay, maternity allowance and statutory adoption pay. The partial RIA on that topic states that it will cost the Inland Revenue £55 million in one-off costs and £26 million a year in ongoing costs to take that work over from employers. Since employers are currently required to administer those payments on behalf of the Government, employers are effectively contributing a lump sum of £55 million plus £26 million per year to the Inland Revenue.
	I would therefore draw the Minister's attention to some of the BCC's recommendations on ways to improve RIAs. First, a Minister agreeing to an RIA where the quantified benefits do not appear to exceed the costs should explain why, in his or her view, the RIA is justified none the less. Secondly, Ministers, when signing, should also certify that the RIA meets the Cabinet Office guidelines and justify those areas where it does not. Thirdly, where consultees provide estimates of costs and benefits, a summary of those figures should be reported in the RIA. If those figures differ significantly from the Department's own estimates, a review date should be set—it suggests within two years—to examine the actual costs and benefits, as the guidelines already suggest in all cases. If, on completion of the review, it becomes apparent that the costs of the regulation are not justified by the benefits, the regulation should be revised or repealed.
	Fourthly, sunset clauses should be used, except where the Minister, when signing, explains why it would be inappropriate in a particular case.
	Fifthly, the Better Regulation Executive should maintain an up-to-date database and website of all RIAs, which should be serial-numbered and linked to relevant documents.
	Finally, the BRE should publish an annual report, audited by the National Audit Office, of the Government's regulatory performance and compliance. That report should include additional costs and benefits arising from major regulations that have a significant impact on society, the economy and the environment.
	Overall, however, the real objective is the need to achieve a significant net reduction in the regulatory burden presently placed on business.

Theresa Villiers: What every Government, including our own, have to realise is that it is no longer as easy to dictate to a whole industry or a market how they run their business, because, faced with unreasonable or excessive regulation, many can simply vote with their feet and relocate elsewhere. If consumers do not like the rules that the Government choose to impose on them, they can often easily avoid them by visiting a website based offshore or simply getting on a budget flight to a country where they are allowed to engage in the practice they want to. Legislators now have less power over our daily lives than they used to and Governments need to recognise that we live in a changed and globalised environment. That must affect how they design regulation, where they choose to regulate and where they acknowledge they should not.
	Obviously, a degree of regulation is useful to ensure that markets work efficiently and consumers are protected, but it is clear from the debate that the Government have imposed an excessive amount of regulation. They are not solely responsible for the problems, because the EU is another cost driver. A range of international organisations, many of which are increasingly opaque and unaccountable, also shape regulation in this country, such as the Financial Action Task Force, the World Intellectual Property Organisation, the World Trade Organisation and the Bank for International Settlements. We need to look at how such organisations work to try to reduce the flow of regulation that we receive from them.
	As we have heard, it is the natural instinct of a legislator to regulate. In a sense, that is what many people feel they are in this place to do, and we must produce a political counterweight to that instinct. With hindsight, when a risk emerges, no legislator wants to be part of the Government who failed to regulate it away, but we need to acknowledge that we cannot regulate away all risk and we should not try to do so. One problem is that the legislators who produce new laws do not have to foot the bill—it is not like advocating more public spending. The people who actually have to pay the bill for new regulation are businesses, their customers and their employees whose jobs are threatened.
	I want to consider briefly some of the ways in which we might produce a genuine political counterweight to the urge to legislate. All Governments talk about deregulating but few deliver on it. As many speakers have said, we need to ensure that legislation is properly costed and that a proper cost-benefit impact assessment is made before the decision to legislate. We need to consider whether legislation is necessary or whether competition could provide an acceptable solution to the problem. Is there a real market failure and, if so, is legislation the best way to tackle it?
	To make a reasoned judgment on those questions, we need serious, effective and sound regulatory impact assessments that provide a range of options. As we have heard, RIAs are too often bland, superficial and self-serving. It is vital that they present decision makers with various options—including that of no action at all—from better enforcement of existing rules to small-scale changes in the regulatory structure of significant new legislation. Options to exempt small businesses should always be considered but they are not a panacea for over-regulation, because jobs can be threatened by the over-regulation of large businesses, too.
	When the National Audit Office looked at the RIAs produced by the Government, there was concern that only two in the sample contained a series of options for Ministers. We can contrast that with the situation in other countries. For example, in Australia, the assessment for the Fuel Quality Standards Bill included seven options and 40 pages of in-depth analysis. We need more research into standardising and strengthening the analysis of the decision on whether to regulate or legislate. We need more standardised and rigorous data collection.
	The Treasury green book "Appraisal and Evaluation in Central Government" identified another problem:
	"a systematic tendency for project appraisers to be overly optimistic".
	That is classic Treasury understatement. There is perennially a bias in favour of an optimistic approach to the usefulness and effectiveness of regulation.
	As well as improving the analysis of cost impact assessment, we need to increase the political weight behind it. Cost assessment should ideally be conducted by an agency that is independent of Government. Again, there are precedents overseas. In the Netherlands, such a model has been successfully pioneered.
	Another option is to grant affected parties the right to challenge a piece of legislation in the courts if no proper cost-benefit analysis was conducted. That has worked well in the United States, where the courts have begun to strike down secondary legislation if it is not properly costed.
	Above all, it is important that, when the House signs off a piece of legislation, we do not consider that our job is done. We should continue to assess and review whether the legislation should remain on the statute book, especially in the case of EU directives. There should be a built-in method of assessing whether they should remain. Ideally, almost all regulation should be subject to sunset clauses. There should be regular review of absent sunset clauses and of cost impacts to see whether the original problem has been solved or whether it could be dealt with by competition. We need to consider whether our existing law is still effective in solving the problem. The House should make such review a priority, as it is vital to securing both the competitiveness of our nation and our continuing prosperity.

David Gauke: We have heard Labour Members boast about the 2 million new jobs that have been created since 1997, and a number of Conservative Members have pointed out that many of those jobs were in the public sector. However, we should acknowledge that some of those jobs are in the private sector. Indeed, I come from one of the growth areas in the private sector: a few weeks ago, I worked as a lawyer specialising in financial services regulation, which is a booming part of the economy because of the ever-increasing rules and regulations applied by the Financial Services Authority. Even quite large and sophisticated financial services firms require assistance in dealing with the authorised persons regime, with money laundering, as we heard earlier, and with the whole application process—a welter and gamut of areas that require detailed technical assistance. I am afraid that that is not untypical and that the same thing could be said of a number of other parts of the economy.
	Let us take the FSA as an example. A lot of the rhetoric that comes from the FSA is highly encouraging and welcome. It talks about a risk-based, principle-based approach, which is largely welcomed in the industry. However, what we often get with regulators and, I suspect, with the Government is that, while much of the rhetoric and intent is welcome, it does not work out in reality. Although the talk at senior level is of a risk-based approach, when it comes to transmitting that in practice, what we get is a much more rigid adherence to detailed rules—a box-ticking approach. That is what a lot of the industry finds.
	I know from personal experience and from a study carried out by the Centre for Policy Studies that such things are common. It is no surprise, that even the Prime Minister recognises some of the difficulties with this specific issue. He says that
	"something is seriously awry . . . when the Financial Services Authority . . . is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone".
	Of course, that contrasts with the Chancellor's approach when he says that the FSA is a world-leading example of how to regulate financial services, but perhaps I shall leave that aside for a moment.
	I quoted the speech that the Prime Minister gave to the Institute for Public Policy Research on 26 May. I have read through it, and it is a reasonable and impressive speech, but it contrasts with the Minister's speech, in which he painted a picture of a world where regulation was not a problem in business, in the public services or in the voluntary services. Everything seemed to be absolutely fine. However, the Prime Minister in referring to "intrusive regulation" said:
	"So what to do? First, recognise the problem."
	I should have thought that this evening provided an ideal opportunity for Labour Members to recognise the problem, but there is no sign of them doing so whatever. It is also worth pointing out that the Minister quoted a couple of senior Conservatives who, after leaving government, spoke about the difficulties of deregulation. It appears that the Prime Minister is even more advanced, because he has not yet left the Government, but already recognises the Government's difficulty in deregulating.
	I shall move on to other areas. I referred to financial services and, of course, business regulation is a key aspect, but let us also consider local government. My constituency faces a specific health and safety problem with monuments in cemeteries. There is a legitimate health and safety issue with such monuments because some tragic incidents have occurred in recent years. However, a disproportionate approach appears to be applied by the Health and Safety Executive in requiring that every monument, even if only 18 in or 2 ft above the ground, must be rigorously tested and removed. That causes a great deal of concern for my constituents and a degree of sensitivity.
	I also wish to touch briefly on the voluntary sector, which has not been referred to in the debate. I have spoken to charities in my constituency that find that they are losing volunteers because of the increased burden of bureaucracy. Volunteers are driven away by having to carry out risk assessments, the training requirements and the delays in charities being able to make use of them because of those requirements.
	The Government must recognise a problem in this country with regulation. A remote Government set rules but, by the time they are transmitted, they cause enormous difficulties—be they in our public services, our voluntary sector or in business.

David Willetts: We have had a useful debate that was powerfully opened by my right hon. Friend the Member for Wokingham (Mr. Redwood) and included valuable contributions from my hon. Friends the Members for North-West Norfolk (Mr. Bellingham), for Braintree (Mr. Newmark), for Chipping Barnet (Mrs.   Villiers) and for South-West Hertfordshire (Mr. Gauke). They all spoke about the sheer frustration that so many business people and British citizens feel at the burden of regulation that they now face.
	What a pity that the Chancellor of the Duchy of Lancaster just did not seem to be aware of the economic impact of the regulations that his Government are imposing. He gave a complacent account of the state of the British economy and seemed to fail to recognise the problem of regulation. All he needed to do was to read this morning's Financial Times, in which he would have found that Sir David Arculus—who is, after all, the head of the Government's own taskforce—estimates that the cost of regulation to the British economy is between 10 and 12 per cent. of GDP. That makes up to £150 billion of regulatory costs on the British economy. Of that, some is, of course, desirable or necessary regulation; we recognise that. However, on Sir David's estimate, one third is bad regulation. That means that £50 billion is the cost of bad regulation. That is the scale of the challenge that the adviser to the Chancellor of the Duchy of Lancaster set out. What a pity he did not seem to recognise it.
	Many of us see at close hand in our constituencies the effects of some of the Government's ill-thought-out regulations. I think of the volunteer who helped to check the electric wiring at our local church hall. He will now have to pay an exorbitant price to be certified as a competent person to carry on doing something that he had been doing as a volunteer. I think of the money-laundering regulations that mean that people who want to start a small business and get on with creating wealth for our country have to spend weeks, if not months, presenting documents to a bank before they can even open a bank account. I think of the threat posed by the Licensing Act 2003 to our village halls and to many of our local charities. I think of the social hall attached to a firm in my constituency that previously paid £16 a year to be registered as a place where people could come and enjoy a pint and that is faced with a fixed charge of £1,000 and an annual payment of £300. Those are the burdens and human costs of the regulations that this Government have imposed, but one would not have believed it from anything that we heard from the Chancellor of the Duchy of Lancaster.
	Ministers, of course, pledge to act—they always pledge to act. In fact, that is what they have said in successive manifestos. The Labour manifesto of 1997 said:
	"We will cut unnecessary red tape".
	The Labour manifesto of 2001 said:
	"We will cut back the red tape associated with regulation".
	Its manifesto of 2005 said that it
	"will set exacting targets for reducing the costs of administering regulations."
	That is what Labour always says, but it never does it. Meanwhile the burden of regulation gets heavier and heavier. All that we get are endless reports. In fact, Labour is so committed to cutting back the burden of bureaucracy and red tape that we got no fewer than two reports on the same day earlier this year about reducing the administrative burden and the amount of regulation. We have taskforces, we have panels, we have units, but we do not have action.
	We have a specific pledge that was made in 2002, and it would be interesting to hear from the Minister how he thinks he is doing on it. There was a Cabinet Office pledge to
	"delivering the commitments in the Regulatory Reform Action Plan, including over 60 Regulatory Reform Orders by 2005."
	The Government set themselves the target of repealing and reversing 60 regulatory orders by 2005, but what happened? The score was a mere 25 orders, but they have got out of their manifest failure to meet that target by rewriting it, so the target is now 75 regulatory orders by 2008. That reflects their failure to tackle the problem.
	The Government promised to introduce business planning zones. The Treasury document, "Enterprise Britain: a modern approach to meeting the enterprise challenge" said, under the heading "Regulatory reform":
	"New planning reforms will allow local authorities to cut red tape for new and expanding businesses by removing the need to apply for planning permission in designated Business Planning Zones."
	Three and a half years on, where are these designated business planning zones? They do not exist yet—not a single one has been created. The Government talk about things, but they do not do them.
	We have a Ministerial Committee on Regulation, Bureaucracy and Risk. It even has a Sub-Committee: the Sub-Committee on the Panel on Regulatory Accountability. The Sub-Committee has the Prime Minister as Chair, but just in case he needs support, it has a joint Chair: the Chancellor of the Exchequer. In case the Chair and the joint Chair are not enough—after all, the Sub-Committee is supposed to be cutting back on bureaucracy—the Chancellor of the Duchy of Lancaster is the alternate Chair. The Sub-Committee is supposed to hold Departments' regulatory performance to account, but what has it done? What has it achieved and what has been delivered? Of course, very little has happened.
	The Chancellor of the Duchy of Lancaster said that good progress has been made and that the measures that the Government have taken had been welcomed by business, but as my hon. Friend the Member for South-West Hertfordshire pointed out, that is not what the Prime Minister says. It was not what the Prime Minister said in his speech to the Institute for Public Policy Research on 26 May 2005, when he said:
	"The result is a plethora of rules, guidelines, responses to 'scandals' of one nature or another that ends up having utterly perverse consequences."
	Those words of the Prime Minister were very different from those that we heard today from the Chancellor of the Duchy of Lancaster.
	The Prime Minister went on in that speech to describe some of the problems realistically. He spoke about the Financial Services Authority, which was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent. He said that the FSA was
	"seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone."
	One wonders who introduced the FSA. Whose legislation was the Prime Minister so savagely attacking? He was attacking his own legislation. The body was his own creation and the Prime Minister knew that there was a problem because he went out of his way to attack his own policy.
	Several of my hon. Friends have pointed out that the Prime Minister has talked frankly about the problems of EU regulation. In the same speech he said:
	"About 50 per cent. of regulations with a significant impact on business now emanate from the EU."
	Conservatives Members know that that is a problem. He went on to say:
	"And it often seems to want to regulate too heavily without sufficient cause. The EU vitamins directive is a good example."
	Conservative Members have regularly challenged the Prime Minister and the Government on the effect of the EU vitamins directive. It was no good him turning up to attack it last month because when he was asked about it by Conservative Members at Prime Minister's Question Time last December, he said:
	"As ever, we must proceed according to the science, and the position set out by the Government is the one that I support."—[Official Report, 1 December 2004; Vol. 428, c. 633.]
	He delivered a speech last month in which he attacked a regulation that he supported.
	The Prime Minister went further in his speech by attacking other regulations. He said:
	"A village in the Cotswolds was required to pull up a seesaw because it was judged a danger under an EU Directive on Playground Equipment for Outside Use. This was despite the fact that no accidents had occurred on it."
	One might think that that powerful example of over-regulation was attributable to that EU directive. The only trouble is that there is no such EU directive on playground equipment for outside use. In fact, playgrounds are not regulated by the EU at all. No EU directive covers playgrounds. So we have a Prime Minister who turns up to announce that he is against red tape, who denounces his own legislation, who claims to agree with us on a directive that he has defended from the Dispatch Box, and who invents EU directives that he can then attack. He is not a very good chairman of this panel on regulatory bureaucracy if he knows so little about his Government's policies.
	Conservative Members understand the problem. We are committed to tackle it. That is why we will vote for our motion.

Jim Murphy: We have had a timely and interesting debate. Among other things, we heard about rabbit holes, the Warren commission, grassy knolls and even nits in the Members' changing room, although I have not yet seen those. We also had contributions from my hon. Friends the Members for Ochil and South Perthshire (Gordon Banks) and for Wakefield (Mary Creagh), and the hon. Members for North-West Norfolk (Mr. Bellingham), for Braintree (Mr. Newmark), for Chipping Barnet (Mrs. Villiers) and for South-West Hertfordshire (Mr. Gauke). I agree with the hon. Member for South-West Hertfordshire more than most, if only because he quoted the Prime Minister. One tip I was given this evening for my first winding-up speech was always to agree with the Prime Minister when he is quoted.
	My hon. Friend the Member for Wakefield said that we need to get the balance of regulation right in terms of laudable aim and risk. She talked with great experience from her life before being elected to this place. My hon. Friend the Member for Ochil and South Perthshire brought his business experience to the debate when he stressed the need for us to support small businesses. He asked about providing one source of information in a one-stop shop for small businesses. I am delighted to remind him that the Department of Trade and Industry website has a specific one-pager on compliance for small businesses. I shall give him that address. It is one aspect of what we are undertaking.
	Sole traders need one form to set up. Private companies need five. That may be too much, but 20 licences, certificates and registrations were needed to start a business in the 1990s. We have also introduced 400 deregulatory measures, cut small companies' corporation tax and extended research and development tax credit, providing £400 million to businesses.
	We also heard an interesting speech from the hon. Member for Braintree, who clearly has strong and detailed opinions on regulatory impact assessments. He will have the opportunity to raise those specific points when we discuss various Bills in the Chamber and in Committee.
	The hon. Member for North-West Norfolk, in his usual passionate and unique way, offered generous praise to the former Chairman of the Trade and Industry Committee. I also heard him offer sedentary support to the right hon. Member for Wokingham (Mr.   Redwood) in his possible leadership challenge. Perhaps new hon. Members do not know that the hon. Gentleman served for six years as a Parliamentary Private Secretary to the right hon. and learned Member for Kensington and Chelsea (Sir Malcolm Rifkind), who has his hat in and out of the ring. I look forward to that conversation on his backing for the right hon. Member for Wokingham.
	The hon. Member for Chipping Barnet has large footsteps to follow in the shape of Sir Sydney Chapman, who had a strong reputation and was respected by hon. Members on both sides of the Chamber. She and others talked about the need for risk-based assessment as we regulate. They were correct in doing so. We are also committed to reducing the number of regulators who interact with business from 31 to seven, to reducing the number of inspectorates that interact with public services from 11 to four, and to introducing not one but two deregulation Bills. We are determined to make progress in reducing the number of inspections of good councils and schools, strong police forces and other bodies.
	We have had an interesting debate. Better regulation is crucial if the UK economy is to meet the challenges of established economies in the US, Japan and elsewhere. It is also crucial if we are to continue to be one of the most successful economies in Europe—if not the most successful—if we are to remain the most stable economy in the G8 and if we are to position our economy strategically so that we can meet the challenges of the coming economic age and the massive global challenge posed by India and China. We will never compete with India and China if we accept the Opposition's rhetoric about low-cost employment. Our competitive edge will depend on our having the best skilled work force, and on basic innovation and world-class research. Better regulation will play an important part in achieving that.
	Turning to other contributions, the hon. Member for North Norfolk (Norman Lamb) highlighted the Liberal Democrats' priorities, as we heard about support for a national scheme of dog licensing from a party that opposed the national minimum wage.

Jon Trickett: His speech was barking.

Jim Murphy: Of course it was, and it seemed to be longer than was in fact the case. There was a point at which I hoped that the hon. Gentleman would offer to send me a copy of his speech, and save me listening to the last 10 minutes. He asked about regulatory impact assessments, and I can confirm that, after consultation, a series of amendments have been made to proposed pieces of legislation in the UK and in the European Union, some of which have been withdrawn as a consequence of negative RIAs. He asked whether the use of sunset clauses would become standard. We do not believe that that is necessary. It is necessary in some cases such as legislation on civil contingencies and anti-terrorism laws, but we do not wish to use them as standard, because it would create great uncertainty among business and others about the direction of government. It would also be much more expensive.
	The hon. Member for Havant (Mr. Willetts) is rightly considered by himself and others as having two brains, but that assessment is called into question by his publicly stated desire to lead his party. Tonight, he should have used his two brains to help write two speeches for the Tory spokesmen. Without wishing to be unkind, the speech by the right hon. Member for Wokingham was a cut-and-paste assembly of stories from page 17 of various editions of the Daily Mail. [Interruption.] I know I am being generous. In a 30-minute speech, he only woke up in the final 30 seconds. Listening to him, I was reminded of a man for whom time stands still. It is as if in the mid-1990s he fell asleep at his desk as Secretary of State for Wales, and only woke up today. He attacked inefficiency in the UK economy and talked about the scourge of mass unemployment, but as he stirred from his slumbers, he did not seem to realise that we have moved on from the days in which 3 million people were unemployed and interest rates were set at 15 per cent. for one year and at more than 10 per cent. for four years. He missed the fact that regulation doubled under the Conservatives and that the number of statutory instruments increased to more than 3,000. It is no surprise that he is one of the few former Tory Cabinet Ministers who has failed to dip at least one toe into the pond of the Tory leadership challenge.
	Labour Members believe that the UK's competitiveness—its sense of purpose and its ability to compete in the EU and elsewhere—is essential if we are to remain at the cutting edge of the EU and meet the challenges of the world economy. We need strong, positive and determined leadership in the EU; we need to continue record levels of investment in, and reform of, the public services; and we need to maintain a stable and dynamic economy. I urge my hon. Friends to oppose the motion and support the amendment that stands in my name and those of my hon. Friends.

Question put, That the original words stand part of the Question:—
	The House divided: Ayes 198, Noes 313.

Question accordingly negatived.
	Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments):—
	The House divided: Ayes 304, Noes 203.

Question accordingly agreed to.
	Mr. Speaker forthwith declared the main Question, as amended, to be agreed to.
	Resolved,
	That this House welcomes the steps the Government is taking to remove unnecessary regulations and rationalise inspection arrangements in both the public and private sectors; acknowledges the additional freedoms given to high performing schools, hospitals and local councils; notes the lead the Government has taken in driving forward the better regulation agenda in Europe; recognises the benefits that well-targeted and proportionate regulation can bring in driving up standards; and further notes that the UK is seen by international observers as a leader in the field of regulatory reform and that the success of the UK economy reflects the approach the Government has taken.

CONSOLIDATED FUND (APPROPRIATION) BILL

Order for Second Reading read.
	Question, That the Bill be now read a Second time, put forthwith, pursuant to Standing Order No. 56 (Consolidated Fund Bills), and agreed to.
	Bill accordingly read a Second time
	Question, That the Bill be now read the Third time, put forthwith, and agreed to.
	Bill accordingly read the Third time, and passed.

DELEGATED LEGISLATION

Motion made, and Question put forthwith, pursuant to Standing Order No. 115(3) (Northern Ireland Grand Committee (delegated legislation)),

Northern Ireland

That the draft Budget (No. 2) (Northern Ireland) Order 2005, which was laid before this House on 9th June, be approved.—[Mr. Alan Campbell.]
	Question agreed to.

ADJOURNMENT (SUMMER)

Motion made, and Question put forthwith, pursuant to Standing Order No. 25 (Periodic adjournments),
	That this House, at its rising on Thursday 21st July, do adjourn till Monday 10th October 2005.—[Mr. Alan Campbell.]
	Question agreed to.

COMMUNITY HOSPITALS (NEW FOREST)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Alan Campbell.]

Mr. Speaker: I call Dr. Lewis.

Desmond Swayne: Hear, hear!

Julian Lewis: I am very grateful for the fact that I have attracted the above-average number of Members who are remaining this late in the proceedings. I am even more grateful for the vocal support of my hon. Friend the Member for New Forest, West (Mr. Swayne).
	I first raised the question of the closure of in-patient beds in community or cottage hospitals in the New Forest at business questions on 9 June. The Leader of the House—I am sorry not to see him here tonight, although I am pleased to see the far more appealing form of the Under-Secretary of State for Health, the hon. Member for Don Valley (Caroline Flint), in his stead—gallantly said that he was looking forward to reading my speech in the Adjournment debate for which I would undoubtedly apply. This is that speech, and I hope that in due course the Leader of the House will feel informed by what he reads in the days ahead.
	Even as we speak, events in New Forest primary care trust are unravelling fast. Only this week, the Lymington Times featured an article headed:
	"Why is Hythe minor injuries unit still closed?".
	I should explain that the two hospitals to which I shall refer are Hythe hospital and Fenwick hospital in Lyndhurst. Both hospitals are much loved. Both were created as a result of money raised by the local communities, both have a high reputation, and both were part of something called the community health services trust, which was still in place when I became the Member of Parliament for New Forest, East in 1997.
	I am reliably informed that running the community health services trust was always financially tight, but that there was no question of its operating in deep deficit—a deep deficit that has become catastrophic in the four years or so since the trust was replaced by New Forest PCT. I would say a word or two about the financial aspects, but that it is not the matter on which I propose to concentrate.
	Certainly a good many PCTs started with deficits. I understand that New Forest PCT started with a deficit of about £2 million. But by March this year I was being told by the chief executive that the deficit would be up to £11 million, and now that gentleman—Mr. John Richards—states that it will be £13.5 million.
	When the PCTs were set up, there was an immediate expansion of management. Ten PCTs came into existence in Hampshire alone, instead of a single health authority. There have been many explanations for the increase in the debt. I have been told, for example, that New Forest has been charged up to 30 per cent. more for the same services because we are regarded as being more prosperous. It is a fact, however, that the community or cottage hospitals have never been a great drain on the national health service. Even today, the League of Friends of Hythe hospital has £123,000 in the bank which it is willing to make available in the future, as it has made so many hundreds of thousands of pounds available in the past, to support the hospital and pay for equipment.
	To be fair to the PCT, I should say that I got in touch with Mr. Richards, told him about the debate and offered him an opportunity to give his account of why there is such a gigantic debt. He replied:
	"The PCT has a recurring deficit as of the 1st April 2005 of £13.5 million"
	—the figure that I mentioned a few moments ago.
	"This is effectively the overspend that we had in 2004–05 plus the £4.8 million of support via SHA"
	—the strategic health authority—
	"and adjustments from our balance sheet, being the reversal of prior year provision no longer required."
	I hope that that is clear to everyone, even if it is not clear to me.
	"This helped to reduce our overspend last year. The underlying deficit is added to by the funding of mandatory NHS investments/inflation (consultant contract, pay awards, agenda for change etc) which has to be passed on to all our providers. The impact of prior year commitments and the full year effect of last year's developments adds to our deficit, the bulk of which relates to the full costs of acute hospital activity under payment by results. Effectively the New Forest has in the past not paid the full cost as per the national tariff which gives us an in-year cost pressure. This is compounded by the fact that emergency admissions to hospitals are rising above the national average."
	That is the financial picture as painted by the PCT. I do not wish to dwell further on that, because the PCT is not using financial pressure as the argument for closing in-patient beds in the New Forest's community hospitals. On the contrary, we are being given a doctrinal update of what we were given when so many mental health establishments were closed previously, in order to bring about care in the community. We are being told that people in in-patient beds in community hospitals do not really need to be there, and that they would be much better catered for in their own homes. We are told that there will be a consultation exercise.

Sandra Gidley: The hon. Gentleman will be aware that the consultation affects Romsey hospital, which is in my constituency. Is he also aware that a bed-usage survey claimed that only a small percentage—some 16 or 17 per cent.—of people in community hospital beds need to be there? But the problem is that it is difficult to get hold of that document or to find out the assumptions on which it was based. Nor has there been any consultation with local GPs.

Julian Lewis: The hon. Lady is absolutely right, and I thank her for her contribution. A great deal of secrecy is involved in this process, and I give notice now that I intend to apply, under the terms of the Freedom of Information Act 2000, for as many documents as I can obtain from the PCT, in order to determine its real strategy with regard to closing beds. It has become blindingly obvious that the intention all along has been to close these hospitals and to remove a whole layer of care.
	I began by saying that we were supposed to have a consultation exercise. I was assured at several of the public presentations that I attended, which were given by the PCT chief executive and members of his staff, that that consultation exercise had yet to begin. I was given an absolute assurance at those meetings that the consultation would come later, and that there were five options on which people could give their views to the PCT. They ran the full gamut—from not closing any community hospital beds to closing them all. Now, we are led to understand that the goalposts have been shifted. The scene has been shifted, and in fact a piece of extremely sharp practice has been carried out. We are now told that the five options have become two. Given the tenor of my remarks, it will not surprise Members to learn that those two options are to close a lot of beds, or to close them all.
	In a letter to the chairman of the health review committee, the chief executive of the New Forest PCT said that
	"the feedback from the public has been that the most valued local services are outpatients, investigations and day surgery, and that where possible they would prefer to receive care in their own homes. Inpatient beds were seen as a lower priority."
	That will come as news to the 4,300 people who have signed a petition protesting against the closure of in-patient beds in the Fenwick hospital in Lyndhurst.
	My time is very short, as I wish others to have a chance to contribute to the debate, so I will just say this. It is clear—indeed, it is a mathematical certainty—that the closure of these hospitals will make the financial position worse, not better. It is absolutely obvious that if 20 patients are to be catered for in 20 different homes, they will require more people to support them than would be required if they were concentrated in a single location such as a cottage hospital. Even now there are not enough people to support those who require attention in their own homes and if the cottage hospitals disappear, one of two things will happen. Either people will remain at home when they should be in a cottage hospital, or they will go into the only remaining hospital beds—the expensive beds in the general hospitals. Indeed, general hospital beds are three times as expensive as community hospital beds.
	I want to end on a positive note. Hampshire county council, which has been repeatedly rated as excellent, is introducing plans to provide 500 nursing care beds at 10 locations in the county. Out of the 500 beds, 100 will come to the New Forest. If the number rises to 800 beds, including rehabilitation beds, it will mean 160 beds in the New Forest. There is every possibility that Hampshire county council can come to the rescue here by using the sites, if not the buildings, of these cottage hospitals to keep these much loved and much valued enterprises alive. Speaking for myself, I would have a lot more confidence in an excellent county council running these establishments than in the absolute catastrophic mess made by an incompetent management that has filled the local service with dismay and despair.

Desmond Swayne: I thank my honourable, indefatigable and great Friend the Member for New Forest, East (Dr. Lewis) for his persistence and generosity.
	What on earth is happening? We are told that we are spending ever greater amounts on the national health service. We know that we are paying ever greater amounts in our income tax and national insurance contributions, but why are we not getting our share in south-west Hampshire? How is it that we are now being told that the New Forest primary care trust may not be able to honour the decisions of the National Institute for Clinical Excellence when it comes to prescribing and that either all or most of our community hospital beds are to be closed?
	What I really resent is being told that less means more, that all this does not represent a cut at all, as it is part of a new, improved model of working and an improvement in the service. We are even told that these people do not need to be in hospital as they would be much happier at home. Teams are to be provided, we are told, to go into people's homes to care for them so that they do not have to go to hospital. Anyone who has a domiciliary care package funded by social services in Hampshire will know that the staff to provide those services simply cannot be had. The notion that the cash-strapped New Forest PCT will be able to provide the services is utterly fanciful.
	The hon. Member for Romsey (Sandra Gidley) referred to the bed survey. I have deep reservations about the work that went into that and I have received representations about it from general practitioners in the New Forest. It simply does not take into account the fact that the typical stay in an acute bed in Southampton or Bournemouth is a week, whereas in the New Forest community or cottage hospitals it is four weeks, because of the emphasis placed on rehabilitation. Add to that the completely inadequate arrangements for transferring patients from acute care back into the community—let us say in a rest home or a care home—and we have a recipe for absolute disaster. It is bad enough that beds are being blocked in acute hospitals, but if we lose the beds now available in the community hospitals in Milford and Fordingbridge in my constituency, for example, we will place an enormous burden on what is held out as the great prize—the new hospital to be built in Lymington.
	Lymington holds out an enormous opportunity because it allows the possibility of bringing back some of the acute care that is now delivered in Bournemouth and Southampton, with huge financial savings for the New Forest primary care trust. However, if we close the beds in the New Forest community and cottage hospitals, we run the risk of that opportunity completely disappearing, at great financial cost to the New Forest.
	The hospitals in Fordingbridge and Milford are near the centres of population and, more particularly, near the centres of elderly population. That is an important factor in the New Forest, where public transport is largely non-existent. The hospitals have a good standard of facilities, supported—as my hon. Friend has pointed out already—by extraordinary efforts by leagues of friends. They have an excellent record of clinical and rehabilitation care and infection control. Both are next door to local GP practices—a very important factor—and they both have parking, which Southampton hospital, Bournemouth hospital and the new hospital at Lymington do not have, which is another important factor.
	Under section 10(2) of the National Health Service and Community Care Act 1990, the Minister has the power to set aside the requirement on the New Forest primary care trust to balance the budget. I urge her to take the opportunity to do so this year, so that we can examine the case that has been made and ensure that an enormous opportunity for the new hospital in Lymington is not lost through the closure of the facilities in Milford and Fordingbridge. Their closure would place a huge burden on the new hospital that it would not be able to discharge, with financial and on-going consequences for the primary care trust.

Andrew Murrison: I congratulate my hon. Friend the Member for New Forest, East (Dr. Lewis) on introducing this debate, and I wish to contribute briefly to it. The clinical case for cottage hospitals is well made. We all know about the excellent health care that community hospitals provide to patients. We also know how loved they are by their communities. What has not been made clear enough is the economic case for community hospitals, and I hope the Minister will talk a little about that.
	There is a natural centralising tendency on the part of health care managers and policy makers. When choosing between options, they invariably choose the closure of a peripheral unit. I hope that the Minister will note the comments made by my hon. Friend in terms of the relative cost of acute hospital care and community hospital care, and that they will influence the decisions that she makes and her vision for the future of community hospitals.

Caroline Flint: I congratulate the hon. Member for New Forest, East (Dr. Lewis) on securing this evening's debate and I welcome the contributions from the hon. Members for Romsey (Sandra Gidley), for New Forest, West (Mr. Swayne) and for Westbury (Dr. Murrison).
	On the point just made by the hon. Member for Westbury, it is important to consider a health service fit for the 21st century. As the Minister with responsibility for public health, I am keen to see what we can do outside hospitals to encourage preventive health measures that, in the medium to long term, will change the journeys of many people who, for all sorts of reasons, end up in the acute sector for treatments and operations that—with more emphasis on public health and treatment outside hospitals—they might not require.
	We must also recognise that within our hospitals, acute and community, a wide-ranging debate is being held about whether all the services currently provided are fit for purpose and whether some of them could be better provided in a different environment. In addition, as the number of elderly in our population is expanding, we need to look into providing services that meet people's needs in different circumstances. I am sure that every Member in the Chamber acknowledges that older people prefer to have services that enable them to continue an independent life in their home environment for as long as possible. They want local services, but not necessarily in a hospital.
	Having said all that, I agree that there is not a one-size-fits-all solution and there is a continuing role for acute hospitals and community hospitals. I am sure that hon. Members are aware that our general election manifesto highlighted the fact that community hospitals would have a role. However, in a health service fit for the 21st century, we must have provision that meets the needs of local communities, and I pay tribute to the staff in the areas of all the hon. Members, and in mine and that of my hon. Friend the Economic Secretary to the Treasury, for their important work to support patients.
	I acknowledge that many campaigners, on whose behalf the hon. Member for New Forest, East spoke this evening, are concerned about the provision of local health services and have expressed their opposition to the proposals made by the South-West Hampshire primary care trust alliance. I assure them and the hon. Gentleman that no final decision has been to close hospitals and that there will be extensive consultation.
	Before talking in detail about the proposals, I shall outline how the NHS is organised and where responsibility lies. From some of the comments of Conservative Members and of the hon. Member for Romsey, one might think that they did not believe in local decision making. From their comments, one might conclude that, although they argue for local decision making, when it happens, they are not quite so much in favour of it. However, it is important that the stakeholders who lead the consultation listen to local communities and make their case.

Desmond Swayne: To whom are those local decision makers accountable and by whom have they been elected?

Caroline Flint: As the hon. Gentleman knows, it is the responsibility of PCTs, working in partnership with strategic health authorities, to determine how best to use funds to meet national and local priorities for improving health, tackling health inequalities and modernising services. There have been discussions and consultations with local service users on the best use of services, and they will continue. I am sure hon. Members will agree that hospital and community services need to continue to modernise to meet the needs of patients. That is the process under way in the New Forest.
	Hon. Members, especially on the Conservative Benches, have always been keen to advocate prudent financial management. There are some real issues relating to deficits and efficiency. Part of what we are trying to encourage, which I hope hon. Members will support, is a good look at how services are being provided and whether they meet the needs of local communities or whether they could be provided in a better way to meet both local needs and the requirement for financial accountability.
	The two primary care trusts responsible for community hospitals in the constituency of the hon. Member for New Forest, East—New Forest PCT and Eastleigh and Test Valley South PCT—have formed an alliance under one management team to undertake a strategic review of community services. Nationally, there is increasing emphasis on providing services for patients, where possible, in the community—I acknowledge that it may not always be possible—enabling them to remain at home, without the need for a stay in hospital. That is a vision of a patient-centred service—not one size fits all, but a service that delivers health care where the patient wants it, and it underpins our drive to modernise NHS services.
	Locally, other factors have necessitated the alliance's review of community services. Five community hospitals will come under the review: Milford on Sea, Hythe, Fenwick Hospital in Lyndhurst, Romsey and Fordingbridge. They are all about 25 minutes drive from one another. Together, they provide up to 119 beds, including GP, consultant, maternity and orthopaedic beds.
	Research commissioned by the alliance shows that only 16 per cent. of patients in the community hospitals were treated appropriately. More than half of in-patients are waiting to transfer either to a more appropriate facility or to their own home with appropriate support. I heard what the hon. Member for Romsey (Sandra Gidley) said about the research on which that is based and I am happy to provide her, where I can, with some information. I understand that someone was sought to carry out an extensive consultation of some 1,300 service users. I am sure that the hon. Gentlemen and the hon. Lady agree that the alliance must review how better services can be provided for patients.
	There are some other difficulties. Some of the community hospital buildings are inappropriate for modern health care and require an estimated £20 million to bring them up to standard. Apparently, there have been difficulties in recruiting the staff needed to deliver clinically safe services—one of the issues uppermost in patients' minds when they enter a hospital. For reasons of patient safety, 20 beds at Fenwick hospital have been closed since February. The minor injuries unit at Hythe hospital was also closed for more than 18 months.

Julian Lewis: Exactly the same techniques have been used at Hythe and Fenwick hospitals. They relate to saying that the recruitment of nurses has been inadequate. At Hythe hospital, there was a shortfall for a month. When that shortfall was made good and those involved were ready to reopen, the PCT refused to allow them to do so. They are not a bunch a disinterested people who are trying to make an open-minded assessment, but a bunch of outside hatchet men who are determined to close those hospitals. The Minister says that only 60 per cent. of the people should have been there, but where will that 60 per cent. go when the hospitals are closed? It is not even those hospitals that are responsible for the financial deficits. The whole thing is a set-up.

Mr. Deputy Speaker: Order. The hon. Gentleman must leave the Minister time to reply.

Caroline Flint: Thank you, Mr. Deputy Speaker.
	Part of the consultation involves considering the better use of beds. For example, a recent bed audit at Southampton hospital showed that 30 per cent. of patients awaiting transfer from the acute hospitals were awaiting transfer to community hospitals. That equates to 23 patients for the New Forest. Community hospital provision for those patients needs to be spelt out in the strategy document and should be considered across the piece to ensure that patients are treated in community hospitals, not acute hospitals, where that best serves their interests. However, those people who would be better placed outside community hospitals should be looked after in an appropriate service for their needs   elsewhere. Therefore, the discussion relates to considering how the whole service might best be provided.
	The Lymington unit, while still open, has also experienced some staffing difficulties. Against that backdrop, I would at least hope that hon. Members will recognise that the status quo is not an option. The alliance has taken a broad approach to identify a way forward. It has presented strategic options to improve community services for adults and older people to the two PCT boards and to the Hampshire and Isle of Wight strategic health authority.
	I shall point out a number of new services that are available in the community. A new respiratory assessment unit for people with chronic obstructive pulmonary disease opened on 1 July, thus allowing New Forest patients to be seen closer to home, rather than having to travel to Southampton. The heart failure nurse for the New Forest, based at Hythe hospital with a clinic at Lymington, offers lifestyle and nutrition advice and support on coping with heart failure. The nurse also makes home visits. The endoscopy service, based at Lymington and available to New Forest residents, has expanded, thus allowing more people to be seen closer to home.
	All those issues are difficult because people get used to what they have, but this is part of an exciting agenda, with more money that the Government have provided, to develop services that are not only fit for purpose but have a sustainable future in an ever-changing health environment.
	Question put and agreed to.
	Adjourned accordingly at one minute to Eleven o'clock.